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Irreversibility, Uncertainty and Housing Investment

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  • William Miles

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Abstract

Housing represents a form of “irreversible” investment. Theoretically, increased uncertainty should lower housing investment. Empirically, finding a proxy for uncertainty has proven problematic. Some recent papers have investigated the effect of uncertainty on real estate investment, with varying proxies for uncertainty and mixed results. This paper employs a technique used in modern macroeconomic studies, the Generalized Autoregressive Conditional Heteroskedasticity-in-Mean model, which has been shown to correspond as closely as any known measure to theoretical concepts of uncertainty. Results indicate that uncertainty indeed has a negative impact on housing starts. Copyright Springer Science+Business Media, LLC 2009

Suggested Citation

  • William Miles, 2009. "Irreversibility, Uncertainty and Housing Investment," The Journal of Real Estate Finance and Economics, Springer, vol. 38(2), pages 173-182, February.
  • Handle: RePEc:kap:jrefec:v:38:y:2009:i:2:p:173-182
    DOI: 10.1007/s11146-007-9087-x
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    References listed on IDEAS

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    1. Bulan, Laarni & Mayer, Christopher & Somerville, C. Tsuriel, 2009. "Irreversible investment, real options, and competition: Evidence from real estate development," Journal of Urban Economics, Elsevier, vol. 65(3), pages 237-251, May.
    2. DiPasquale Denise & Wheaton William C., 1994. "Housing Market Dynamics and the Future of Housing Prices," Journal of Urban Economics, Elsevier, vol. 35(1), pages 1-27, January.
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    5. Coulson, N Edward, 1999. "Housing Inventory and Completion," The Journal of Real Estate Finance and Economics, Springer, vol. 18(1), pages 89-105, January.
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    9. Rena Sivitanidou & Petros Sivitanides, 2000. "Does the Theory of Irreversible Investments Help Explain Movements in Office-Commercial Construction?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(4), pages 623-661.
    10. Nick Bloom, 2006. "The Impact of Uncertainty Shocks: Firm Level Estimation and a 9/11 Simulation," CEP Discussion Papers dp0718, Centre for Economic Performance, LSE.
    11. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
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    13. Grier, Kevin B. & Perry, Mark J., 1998. "On inflation and inflation uncertainty in the G7 countries," Journal of International Money and Finance, Elsevier, vol. 17(4), pages 671-689, August.
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    15. Mayer, Christopher J. & Somerville, C. Tsuriel, 2000. "Residential Construction: Using the Urban Growth Model to Estimate Housing Supply," Journal of Urban Economics, Elsevier, vol. 48(1), pages 85-109, July.
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    1. repec:kap:jrefec:v:55:y:2017:i:1:d:10.1007_s11146-016-9560-5 is not listed on IDEAS
    2. repec:rsr:supplm:v:65:y:2017:i:2:p:30-37 is not listed on IDEAS
    3. Bruce Morley & Dennis Thomas, 2016. "An Empirical Analysis of UK House Price Risk Variation by Property Type," Review of Economics & Finance, Better Advances Press, Canada, vol. 6, pages 45-56, May.
    4. repec:erc:cypepr:v:11:y:2017:i:1:p:69-82 is not listed on IDEAS
    5. Maria Christidou & Stilianos Fountas, 2017. "Uncertainty in the housing market: Evidence from the US states," Discussion Paper Series 2017_08, Department of Economics, University of Macedonia, revised Aug 2017.
    6. Gottlieb, Paul D. & O’Donnell, Anthony & Rudel, Thomas & O’Neill, Karen & McDermott, Melanie, 2012. "Determinants of local housing growth in a multi-jurisdictional region, along with a test for nonmarket zoning," Journal of Housing Economics, Elsevier, vol. 21(4), pages 296-309.
    7. Constantin ANGHELACHE & Alexandru MANOLE & Andreea MARINESCU, 2016. "Model of investment analysis in an uncertain environment," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 64(8), pages 77-84, August.
    8. John Clapp & Katsiaryna Bardos & Tingyu Zhou, 2014. "Expansions and Contractions of Major US Shopping Centers," The Journal of Real Estate Finance and Economics, Springer, vol. 48(1), pages 16-56, January.

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    Keywords

    Housing; Investment; Irreversibility;

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