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Land leverage and house prices

  • Bourassa, Steven C.
  • Hoesli, Martin
  • Scognamiglio, Donato
  • Zhang, Sumei

A house is a bundle of land and improvements, with the weights of the two components varying both over time and across locations. We capture the land intensity or "leverage" of a property by measuring the ratio of land to total value. This is accomplished using transactions data for single-family homes in Switzerland over the period 1978 to 2008. We show how to use hedonic models to develop time series of land prices and land leverage. Then we estimate error correction models for both house prices and land leverage. We show the importance of interacting land leverage with fundamentals when assessing the determinants of house prices. House price changes are shown to be affected by changes in real construction costs, in real GDP per capita, and in the growth of the population aged 30 to 49, while land leverage changes are a function of changes in real construction costs and in real GDP per capita.

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Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 41 (2011)
Issue (Month): 2 (March)
Pages: 134-144

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Handle: RePEc:eee:regeco:v:41:y:2011:i:2:p:134-144
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