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Land Leverage: Decomposing Home Price Dynamics

  • Raphael W. Bostic
  • Stanley D. Longhofer
  • Christian L. Redfearn
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    This article demonstrates the importance of separating the bundled good of housing into land and improvements, arguing that changes in a property's overall value will depend critically on how much of its total value is contained in the land, a proportion we call land leverage. The importance of this deconstruction is demonstrated by highlighting how land leverage helps to explain variation in house price appreciation in Wichita, Kansas. Noting that land leverage should be relevant for many real estate issues and policies, we highlight four specific areas where consideration of land leverage could significantly improve our understanding of real estate markets. Copyright 2007 American Real Estate and Urban Economics Association

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    Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

    Volume (Year): 35 (2007)
    Issue (Month): 2 (06)
    Pages: 183-208

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    Handle: RePEc:bla:reesec:v:35:y:2007:i:2:p:183-208
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    1. Edward L. Glaeser & Joseph Gyourko & Raven Saks, 2005. "Why Have Housing Prices Gone Up?," NBER Working Papers 11129, National Bureau of Economic Research, Inc.
    2. Edward L. Glaeser & Joseph Gyourko, . "The Impact of Zoning on Housing Affordability," Zell/Lurie Center Working Papers 395, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
    3. Arnott, Richard & Davidson, Russell & Pines, David, 1983. "Housing Quality, Maintenance and Rehabilitation," Review of Economic Studies, Wiley Blackwell, vol. 50(3), pages 467-94, July.
    4. Coulson, N Edward & Leichenko, Robin M, 2001. "The Internal and External Impact of Historical Designation on Property Values," The Journal of Real Estate Finance and Economics, Springer, vol. 23(1), pages 113-24, July.
    5. Stephen Malpezzi & Larry Ozanne & Thomas G. Thibodeau, 1987. "Microeconomic Estimates of Housing Depreciation," Land Economics, University of Wisconsin Press, vol. 63(4), pages 372-385.
    6. Peter V. Schaeffer & Cecily Ahern Millerick, 1991. "The Impact of Historic District Designation on Property Values: An Empirical Study," Economic Development Quarterly, , vol. 5(4), pages 301-312, November.
    7. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    8. Knight, John R. & Sirmans, C. F., 1996. "Depreciation, Maintenance, and Housing Prices," Journal of Housing Economics, Elsevier, vol. 5(4), pages 369-389, December.
    9. N. Edward Coulson & Michael L. Lahr, 2005. "Gracing the Land of Elvis and Beale Street: Historic Designation and Property Values in Memphis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 33(3), pages 487-507, 09.
    10. Ricardo, David, 1821. "On the Principles of Political Economy and Taxation," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, edition 3, number ricardo1821.
    11. David E. Clark & William E. Herrin, 1997. "Historical Preservation Districts and Home Sale Prices: Evidence from the Sacramento Housing Market," The Review of Regional Studies, Southern Regional Science Association, vol. 27(1), pages 29-48, Summer.
    12. Coulson, N. Edward, 1989. "The empirical content of the linearity-as-repackaging hypothesis," Journal of Urban Economics, Elsevier, vol. 25(3), pages 295-309, May.
    13. Chinloy, Peter, 1980. "The effect of maintenance expenditures on the measurement of depreciation in housing," Journal of Urban Economics, Elsevier, vol. 8(1), pages 86-107, July.
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