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Housing, Land Prices, and Growth

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  • Deaton, Angus
  • Laroque, Guy

Abstract

We consider the effects of land for housing on the growth process within an overlapping generations model. Our original interest was to enquire whether the introduction of land into a growth model might account for a "virtuous" circle in which saving-up for land (or housing) generates growth and higher land prices, generating further increases in saving, and so on. Such an account is sometimes proposed for high saving rates in East Asia, where mortgage markets are limited or absent. Our analysis does not support such a story. The user cost of land reduces the resources available for consumption of reproducible goods, so that the introduction of intrinsically valuable land into a growth model lowers the equilibrium stock of capital and raises the equilibrium interest rate. On the asset side, the presence of land causes life-cycle savings to be reallocated away from productive capital towards land. The social optimum in such a model is for land to be nationalized and provided at zero rent. Land markets, far from generating saving and growth, are inimical to capital formation. Copyright 2001 by Kluwer Academic Publishers

Suggested Citation

  • Deaton, Angus & Laroque, Guy, 2001. "Housing, Land Prices, and Growth," Journal of Economic Growth, Springer, vol. 6(2), pages 87-105, June.
  • Handle: RePEc:kap:jecgro:v:6:y:2001:i:2:p:87-105
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    Cited by:

    1. Miles, David K & Sefton, James, 2017. "Houses across time and across place," CEPR Discussion Papers 12103, C.E.P.R. Discussion Papers.
    2. Day, Creina & Guest, Ross, 2016. "Fertility and female wages: A new link via house prices," Economic Modelling, Elsevier, vol. 53(C), pages 121-132.
    3. Carpantier, Jean-Francois & Olivera, Javier & Van Kerm, Philippe, 2018. "Macroprudential policy and household wealth inequality," Journal of International Money and Finance, Elsevier, vol. 85(C), pages 262-277.
    4. Loupias, Claire & Wigniolle, Bertrand, 2013. "Population, land, and growth," Economic Modelling, Elsevier, vol. 31(C), pages 223-237.
    5. Clément Bellet, 2017. "Essays on Inequality, Social Preferences and Consumer Behavior," Sciences Po publications info:hdl:2441/vbu6kd1s68o, Sciences Po.
    6. Gersbach, Hans & Siemers, Lars-H. R., 2010. "Land Reforms And Economic Development," Macroeconomic Dynamics, Cambridge University Press, vol. 14(04), pages 527-547, September.
    7. Stefan Homburg, 2014. "Overaccumulation, Public Debt and the Importance of Land," German Economic Review, Verein für Socialpolitik, vol. 15(4), pages 411-435, November.
    8. Charles Ka Yui Leung & Nan-Kuang Chen, 2006. "Intrinsic Cycles of Land Price: A Simple Model," Journal of Real Estate Research, American Real Estate Society, vol. 28(3), pages 293-320.
    9. repec:eee:dyncon:v:87:y:2018:i:c:p:106-123 is not listed on IDEAS
    10. Borri, Nicola & Reichlin, Pietro, 2018. "The housing cost disease," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 106-123.
    11. Luigi Bonatti, 2017. "Land, Housing, Growth and Inequality," DEM Working Papers 2017/01, Department of Economics and Management.
    12. repec:hal:cesptp:halshs-00823255 is not listed on IDEAS
    13. repec:kap:itaxpf:v:24:y:2017:i:2:d:10.1007_s10797-016-9403-6 is not listed on IDEAS
    14. Homburg, Stefan, 2017. "A Study in Monetary Macroeconomics," OUP Catalogue, Oxford University Press, number 9780198807537.
    15. Creina Day & Ross S. Guest, 2014. "The Effect of Gender Wages and Working Age Populations on Fertility and House Prices," Crawford School Research Papers 1401, Crawford School of Public Policy, The Australian National University.
    16. Peter Stauvermann, 2002. "Endogenous growth, land and intemporal efficiency," History of Economic Ideas, Fabrizio Serra Editore, Pisa - Roma, vol. 10(1), pages 63-77.

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