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Housing markets and vacant land

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  • Keuschnigg, Christian
  • Nielsen, Soren Bo

Abstract

The paper examines land use in an urban zone. We propose a partial equilibrium model of housing markets with both vacant and built up land. The existing literature assumes building decisions to be irreversible and treats any given stock of vacant land as an exhaustible resource. By way of contrast, we argue that vacant land is built upon in finite time rather than asymptotically, and reduces to a temporary phenomenon only. When housing stocks depreciate, previously built up land is released and may be rebuilt at any structural intensity dictated by the going market conditions. The continued replacement of existing structures allows to adjust the average structural intensity in the city even if all land is built upon. We explain analytically the long-run equilibrium with full land use and demonstrate numerically that vacant land may still be an important transitional phenomenon. In particular, we emphasize the implication for land prices.
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Suggested Citation

  • Keuschnigg, Christian & Nielsen, Soren Bo, 1996. "Housing markets and vacant land," Journal of Economic Dynamics and Control, Elsevier, vol. 20(9-10), pages 1731-1762.
  • Handle: RePEc:eee:dyncon:v:20:y:1996:i:9-10:p:1731-1762
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    References listed on IDEAS

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    1. Calvo, Guillermo A & Kotlikoff, Laurence J & Rodriguez, Carlos Alfredo, 1979. "The Incidence of a Tax on Pure Rent: A New (?) Reason for an Old Answer," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 869-874, August.
    2. Goulder, Lawrence H., 1989. "Tax policy, housing prices, and housing investment," Regional Science and Urban Economics, Elsevier, vol. 19(2), pages 281-304, May.
    3. Rosen, Harvey S., 1985. "Housing subsidies: Effects on housing decisions, efficiency, and equity," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 7, pages 375-420 Elsevier.
    4. Mankiw, N. Gregory & Weil, David N., 1989. "The baby boom, the baby bust, and the housing market," Regional Science and Urban Economics, Elsevier, vol. 19(2), pages 235-258, May.
    5. Capozza, Dennis & Li, Yuming, 1994. "The Intensity and Timing of Investment: The Case of Land," American Economic Review, American Economic Association, vol. 84(4), pages 889-904, September.
    6. Sinn, Hans-Werner, 1986. "Vacant land and the role of government intervention," Regional Science and Urban Economics, Elsevier, vol. 16(3), pages 353-357, August.
    7. James M. Poterba, 1984. "Tax Subsidies to Owner-Occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 729-752.
    8. repec:fth:harver:1424 is not listed on IDEAS
    9. Feldstein, Martin S, 1977. "The Surprising Incidence of a Tax on Pure Rent: A New Answer to an Old Question," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 349-360, April.
    10. Lawrence H. Goulder, 1989. "Tax Policy, Housing Prices, and Housing Investment," NBER Working Papers 2814, National Bureau of Economic Research, Inc.
    11. Turnovsky, Stephen J. & Okuyama, Toshiyuki, 1994. "Taxes, housing, and capital accumulation in a two-sector growing economy," Journal of Public Economics, Elsevier, vol. 53(2), pages 245-267, February.
    12. Firouz Gahvari, 1985. "Taxation of Housing, Capital Accumulation, and Welfare: a Study in Dynamic Tax Reform," Public Finance Review, , vol. 13(2), pages 132-160, April.
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    Cited by:

    1. Luis H.R. Alvarez & Jukka Lempa & Elias Oikarinen, 2009. "Do Standard Real Option Models Overestimate the Required Rate of Return of Real Estate Investment Opportunities?," Discussion Papers 52, Aboa Centre for Economics.
    2. Elias Oikarinen, 2009. "Dynamic linkages between housing and lot prices: Empirical evidence from Helsinki," Discussion Papers 53, Aboa Centre for Economics.

    More about this item

    JEL classification:

    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns

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