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Residential Buildings And The Cost Of Construction: New Evidence On The Efficiency Of The Housing Market


  • Stuart S. Rosenthal


Present value studies of asset market efficiency are controversial because they compare asset prices to unobserved discounted streams of future rents. As an alternative, if housing markets are efficient, then the price of residential capital or buildings should satisfy the following two conditions: (i) deviations between new building prices and construction costs should disappear faster than construction lags and have no effect on construction, and (ii) temporary building price shocks should dissipate at a similar rate for different vintage buildings. Results from an errorcorrection model support both hypotheses for single-family housing in Vancouver, British Columbia. This implies that the implicit market for residential buildings is efficient and that any inefficiencies in the housing market must lie in the market for land itself. © 1999 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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  • Stuart S. Rosenthal, 1999. "Residential Buildings And The Cost Of Construction: New Evidence On The Efficiency Of The Housing Market," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 288-302, May.
  • Handle: RePEc:tpr:restat:v:81:y:1999:i:2:p:288-302

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    References listed on IDEAS

    1. Balke, Nathan S. & Wynne, Mark A., 2000. "An equilibrium analysis of relative price changes and aggregate inflation," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 269-292, April.
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    6. Laurence Ball & N. Gregory Mankiw, 1995. "Relative-Price Changes as Aggregate Supply Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 161-193.
    7. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    8. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
    9. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
    10. N. Gregory Mankiw, 1994. "Monetary Policy," NBER Books, National Bureau of Economic Research, Inc, number greg94-1, January.
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