Modeling Urban Housing Market Dynamics

"This paper addresses the interplay between immigration and housing market dynamics in Israel. The case of Haifa offers a typical non-controlled experiment on how demographic shocks and associated changes in housing demand affect the housing market. The specific pattern offers the opportunity to measure the effect of a large, sudden, incidental and unanticipated shock not analyzed in earlier studies. The number of inhabitants rose in the 1990s to 250,000 with about 66,000 immigrants. The aim of this paper is to analyze how the housing market absorbed the demographic shock. We analyze whether demographics and house prices are co-integrated and address the following questions: Does housing demand by immigrants make house prices peak? How do real price dynamics evolve? Do price dynamics vary across submarkets? Do submarketsí prices converge or diverge? The data analyzed cover housing transactions in Haifa between January 1989 and June 1999 and come from a mortgage database. The data include information on over 7000 transactions with the date of transaction, transaction price, mortgage type, size of the apartment, and location. In the empirical analysis we construct a hedonic price index by tract and by year to investigate the impact of immigration on house price dynamics. We model the price index for 34 tracts over 11 years as a ADL model with its one-period lag, the logarithms of the current number of immigrants into Israel, current building volumes in Israel, size and the proportion of mortgages made available by the public sector.""