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Has the United States Overinvested in Housing?

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  • Edwin S. Mills

Abstract

Several economists have concluded that housing investment has been excessive relative to industrial investment in the U.S. Most blame provisions of the federal income tax that favor owner‐occupied housing. This paper poses the question within a two‐sector neoclassical growth model which permits the social return to housing to differ from that to non‐housing. The model is estimated using national income accounts and capital stock data from 1929 to 1983. The conclusion is that the return to housing capital is about half that to non‐housing capital and that the housing stock should be about 75% of its 1983 volume.

Suggested Citation

  • Edwin S. Mills, 1987. "Has the United States Overinvested in Housing?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(1), pages 601-616, March.
  • Handle: RePEc:bla:reesec:v:15:y:1987:i:1:p:601-616
    DOI: 10.1111/1540-6229.00406
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    File URL: https://doi.org/10.1111/1540-6229.00406
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    References listed on IDEAS

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    1. Patric H. Hendershott, 1982. "Government Policies and the Allocation of Capital Between Residential and Industrial Uses," NBER Working Papers 1036, National Bureau of Economic Research, Inc.
    2. Roger H. Gordon & James R. Hines, Jr. & Lawrence H. Summers, 1987. "Notes on the Tax Treatment of Structures," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 223-258, National Bureau of Economic Research, Inc.
    3. Martin Feldstein, 1983. "Inflation, Tax Rules, and the Accumulation of Residential and Nonresidential Capital," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 81-100, National Bureau of Economic Research, Inc.
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    1. repec:gam:jsusta:v:8:y:2016:i:1:p:66:d:62235 is not listed on IDEAS
    2. Dietz, Robert D. & Haurin, Donald R., 2003. "The social and private micro-level consequences of homeownership," Journal of Urban Economics, Elsevier, vol. 54(3), pages 401-450, November.
    3. Renaud, Bertrand & INU, 1988. "Compounding financial repression with rigid urban regulations : lessons of the Korea housing market," Policy Research Working Paper Series 360, The World Bank.
    4. W. Scott Frame & Lawrence J. White, 2005. "Fussing and Fuming over Fannie and Freddie: How Much Smoke, How Much Fire?," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 159-184, Spring.
    5. Yu Kong & John L. Glascock & Ran Lu-Andrews, 2016. "An Investigation into Real Estate Investment and Economic Growth in China: A Dynamic Panel Data Approach," Sustainability, MDPI, Open Access Journal, vol. 8(1), pages 1-18, January.
    6. Brent W. Ambrose & Dong Wook Lee, 2009. "REIT Capital Budgeting and Equity Marginal q," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(3), pages 483-514, September.
    7. Bertay, Ata Can & Gong, Di & Wagner, Wolf, 2017. "Securitization and economic activity: The credit composition channel," Journal of Financial Stability, Elsevier, vol. 28(C), pages 225-239.
    8. Green, Richard K. & White, Michelle J., 1997. "Measuring the Benefits of Homeowning: Effects on Children," Journal of Urban Economics, Elsevier, vol. 41(3), pages 441-461, May.
    9. Kim, Kyung-Hwan, 2004. "Housing and the Korean economy," Journal of Housing Economics, Elsevier, vol. 13(4), pages 321-341, December.
    10. Ricardo Sabates Land Tenure Center & UW-Madison, 2001. "The Dynamics of U.S. GDP and Investment Sub-Components," Wisconsin-Madison CULER working papers 01-05, University of Wisconsin Center for Urban Land Economic Research.
    11. Lawrence White, 2003. "Focusing on Fannie and Freddie: The Dilemmas of Reforming Housing Finance," Journal of Financial Services Research, Springer;Western Finance Association, vol. 23(1), pages 43-58, February.
    12. Wall, Larry D. & Eisenbeis, Robert A. & Frame, W. Scott, 2005. "Resolving large financial intermediaries: Banks versus housing enterprises," Journal of Financial Stability, Elsevier, vol. 1(3), pages 386-425, April.
    13. Hanson, Andrew, 2012. "Size of home, homeownership, and the mortgage interest deduction," Journal of Housing Economics, Elsevier, vol. 21(3), pages 195-210.
    14. William Miles, 2009. "Housing Investment and the U.S. Economy: How Have the Relationships Changed?," Journal of Real Estate Research, American Real Estate Society, vol. 31(3), pages 329-350.
    15. Lawrence White, 2002. "Reforming Fannie and Freddie: Privatization is the Way," Working Papers 02-10, New York University, Leonard N. Stern School of Business, Department of Economics.
    16. Timothy Bisping & Hilde Patron, 2008. "Residential Investment and Business Cycles in an Open Economy: A Generalized Impulse Response Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 37(1), pages 33-49, July.
    17. Boehm, Thomas P. & Schlottmann, Alan M., 1999. "Does Home Ownership by Parents Have an Economic Impact on Their Children?," Journal of Housing Economics, Elsevier, vol. 8(3), pages 217-232, September.
    18. Lori L. Taylor, 1998. "Does the United States still overinvest in housing?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II, pages 10-18.

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