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Oil Prices and Urban Housing Demand

Author

Listed:
  • William D. Larson

    () (Federal Housing Finance Agency)

  • Weihua Zhao

    () (University of Lousiville)

Abstract

We develop a model of a monocentric, oil-exporting city. The model predicts a "twist" (rotation combined with a level shift) of the house price gradient with an oil price change due to the combined producer price and transportation cost effects. Using ZIP code level house price indices between 1975 and 2015, we show the slope of the house price gradient steepens in all cities when the price of oil is high and flattens when the price of oil is low. Areas specialized in oil and gas-related industries have house price changes that are positively linked with the price of oil. These results are consistent with theoretical predictions, and they quantify the large and differential risks to house prices associated with oil price changes both within and across all cities.

Suggested Citation

  • William D. Larson & Weihua Zhao, 2016. "Oil Prices and Urban Housing Demand," FHFA Staff Working Papers 16-03, Federal Housing Finance Agency.
  • Handle: RePEc:hfa:wpaper:16-03
    as

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    References listed on IDEAS

    as
    1. Raven Molloy & Hui Shan, 2013. "The Effect of Gasoline Prices on Household Location," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1212-1221, October.
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    3. Henderson, J V, 1974. "The Sizes and Types of Cities," American Economic Review, American Economic Association, vol. 64(4), pages 640-656, September.
    4. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1253-1296.
    5. Alexander N. Bogin & William M. Doerner & William D. Larson, 2016. "Local House Price Dynamics: New Indices and Stylized Facts," FHFA Staff Working Papers 16-01, Federal Housing Finance Agency.
    6. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    7. Joseph Gyourko & Albert Saiz & Anita Summers, 2008. "A New Measure of the Local Regulatory Environment for Housing Markets: The Wharton Residential Land Use Regulatory Index," Urban Studies, Urban Studies Journal Limited, vol. 45(3), pages 693-729, March.
    8. Jan K. Brueckner & Stuart S. Rosenthal, 2009. "Gentrification and Neighborhood Housing Cycles: Will America's Future Downtowns Be Rich?," The Review of Economics and Statistics, MIT Press, vol. 91(4), pages 725-743, November.
    9. Matthew J. Notowidigdo, 2011. "The Incidence of Local Labor Demand Shocks," NBER Working Papers 17167, National Bureau of Economic Research, Inc.
    10. Glaeser, Edward L. & Gyourko, Joseph & Morales, Eduardo & Nathanson, Charles G., 2014. "Housing dynamics: An urban approach," Journal of Urban Economics, Elsevier, vol. 81(C), pages 45-56.
    11. Saks, Raven E., 2008. "Job creation and housing construction: Constraints on metropolitan area employment growth," Journal of Urban Economics, Elsevier, vol. 64(1), pages 178-195, July.
    12. Brown, Scott J. & Coulson, N. Edward & Engle, Robert F., 1992. "On the determination of regional base and regional base multipliers," Regional Science and Urban Economics, Elsevier, vol. 22(4), pages 619-635, November.
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    More about this item

    Keywords

    transportation cost; gasoline price; industrial specialization; input-output model; economic base model;

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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