IDEAS home Printed from https://ideas.repec.org/p/tkk/dpaper/dp53.html
   My bibliography  Save this paper

Dynamic linkages between housing and lot prices: Empirical evidence from Helsinki

Author

Listed:
  • Elias Oikarinen

    () (Department of Economics, Turku School of Economics)

Abstract

The price of vacant land zoned for housing is expected to be tightly linked to housing prices. In informationally efficient markets, vacant lot price movements should not lag changes in housing prices. In practice, however, the leading role of housing appreciation with respect to vacant lot price growth may be caused by factors such as thin trading and lack of publicly available data on transactions in the lot market. Based on a vector error-correction model employing quarterly data from the Helsinki Metropolitan Area over 1988Q1-2008Q2, this study shows that housing price movements lead price changes in the market for vacant lots and housing prices react to shocks in the demand side fundamentals more rapidly than lot prices. Overall, the empirical results give support to the hypothesis that house prices respond to shocks influencing the value of developed land first, after which the price level of vacant lots reacts to the information revealed by housing prices. Hence, the results indicate that the market for lots is more informationally inefficient than the housing market. Furthermore, the empirical findings suggest that construction costs too react to income and interest rate shocks.

Suggested Citation

  • Elias Oikarinen, 2009. "Dynamic linkages between housing and lot prices: Empirical evidence from Helsinki," Discussion Papers 53, Aboa Centre for Economics.
  • Handle: RePEc:tkk:dpaper:dp53
    as

    Download full text from publisher

    File URL: http://www.ace-economics.fi/kuvat/dp53.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Keuschnigg, Christian & Nielsen, Soren Bo, 1996. "Housing markets and vacant land," Journal of Economic Dynamics and Control, Elsevier, vol. 20(9-10), pages 1731-1762.
    2. Capozza, Dennis R. & Helsley, Robert W., 1990. "The stochastic city," Journal of Urban Economics, Elsevier, vol. 28(2), pages 187-203, September.
    3. Johansen, S ren, 2000. "A Bartlett Correction Factor For Tests On The Cointegrating Relations," Econometric Theory, Cambridge University Press, vol. 16(05), pages 740-778, October.
    4. Søren Johansen & Rocco Mosconi & Bent Nielsen, 2000. "Cointegration analysis in the presence of structural breaks in the deterministic trend," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 216-249.
    5. Capozza, Dennis R. & Helsley, Robert W., 1989. "The fundamentals of land prices and urban growth," Journal of Urban Economics, Elsevier, vol. 26(3), pages 295-306, November.
    6. Capozza Dennis R. & Sick Gordon A., 1994. "The Risk Structure of Land Markets," Journal of Urban Economics, Elsevier, vol. 35(3), pages 297-319, May.
    7. Titman, Sheridan, 1985. "Urban Land Prices under Uncertainty," American Economic Review, American Economic Association, vol. 75(3), pages 505-514, June.
    8. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679.
    9. Davis, Morris A. & Heathcote, Jonathan, 2007. "The price and quantity of residential land in the United States," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2595-2620, November.
    10. Raphael W. Bostic & Stanley D. Longhofer & Christian L. Redfearn, 2007. "Land Leverage: Decomposing Home Price Dynamics," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 35(2), pages 183-208, June.
    11. Jellal, Mohamed & Thisse, Jacques-Francois & Zenou, Yves, 2005. "Demand uncertainty, mismatch and (un)employment," Economics Letters, Elsevier, vol. 88(1), pages 33-39, July.
    12. Ozanne, Larry & Thibodeau, Thomas, 1983. "Explaining metropolitan housing price differences," Journal of Urban Economics, Elsevier, vol. 13(1), pages 51-66, January.
    13. Doornik, Jurgen A, 1998. " Approximations to the Asymptotic Distributions of Cointegration Tests," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 573-593, December.
    14. Karl Guntermann, 1997. "Residential Land Prices Prior to Development," Journal of Real Estate Research, American Real Estate Society, vol. 14(1), pages 1-18.
    15. Oikarinen, Elias, 2009. "Household borrowing and metropolitan housing price dynamics - Empirical evidence from Helsinki," Journal of Housing Economics, Elsevier, vol. 18(2), pages 126-139, June.
    16. 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.
    17. Davis, Morris A. & Palumbo, Michael G., 2008. "The price of residential land in large US cities," Journal of Urban Economics, Elsevier, vol. 63(1), pages 352-384, January.
    18. Dennis R. Capozza & Gregory M. Schwann, 1989. "The Asset Approach to Pricing Urban Land: Empirical Evidence," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(2), pages 161-174.
    19. Rosenthal Stuart S. & Helsley Robert W., 1994. "Redevelopment and the Urban Land Price Gradient," Journal of Urban Economics, Elsevier, vol. 35(2), pages 182-200, March.
    20. Karl E. Case, 1989. "The Asset Approach to Pricing Urban Land: Empirical Evidence," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(2), pages 175-176.
    21. Somerville, C Tsuriel, 1999. "Residential Construction Costs and the Supply of New Housing: Endogeneity and Bias in Construction Cost Indexes," The Journal of Real Estate Finance and Economics, Springer, vol. 18(1), pages 43-62, January.
    22. Christopher A. Manning, 1988. "The Determinants of Intercity Home Building Site Price Differences," Land Economics, University of Wisconsin Press, vol. 64(1), pages 1-14.
    23. Capozza, Dennis R. & Li, Yuming, 2002. "Optimal Land Development Decisions," Journal of Urban Economics, Elsevier, vol. 51(1), pages 123-142, January.
    24. Joseph Gyourko & Albert Saiz, 2006. "Construction Costs And The Supply Of Housing Structure," Journal of Regional Science, Wiley Blackwell, vol. 46(4), pages 661-680.
    25. Cunningham, Christopher R., 2006. "House price uncertainty, timing of development, and vacant land prices: Evidence for real options in Seattle," Journal of Urban Economics, Elsevier, vol. 59(1), pages 1-31, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Maddison, David & Rehdanz, Katrin, 2014. "Was Ricardo Right?," 88th Annual Conference, April 9-11, 2014, AgroParisTech, Paris, France 169733, Agricultural Economics Society.

    More about this item

    Keywords

    Housing; land; lot prices; dynamics; construction costs;

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tkk:dpaper:dp53. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Aleksandra Maslowska). General contact details of provider: http://edirc.repec.org/data/tukkkfi.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.