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How Important are Land Values in House Price Growth? Evidence from Canadian Cities

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Abstract

A Cobb-Douglas growth accounting framework is used to study the contributions of structures and land to newly-constructed home prices across major Canadian cities. The data set is unusual in that land prices are directly observed rather than having to be imputed, and quality change is carefully controlled for in the measurement of structures. These data permit testing of constant returns to scale, which in conventional applications must be adopted as a maintained hypothesis, as well as the introduction of dynamic effects. Whereas standard analyses and land costs to be the dominant contributor to the growth in housing costs, I find that this varies greatly by city. Yet, despite this novel empirical result, the evidence supports other recent work that endorses the constant-returns Cobb Douglas methodological framework.

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  • Kenneth G. Stewart, 2021. "How Important are Land Values in House Price Growth? Evidence from Canadian Cities," Department Discussion Papers 2004, Department of Economics, University of Victoria.
  • Handle: RePEc:vic:vicddp:2004
    Note: ISSN 1914-2838 JEL Classifications: R31, R32
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    1. Katharina Knoll & Moritz Schularick & Thomas Steger, 2017. "No Price Like Home: Global House Prices, 1870-2012," American Economic Review, American Economic Association, vol. 107(2), pages 331-353, February.
    2. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2021. "The Production Function for Housing: Evidence from France," Journal of Political Economy, University of Chicago Press, vol. 129(10), pages 2766-2816.
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    4. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2021. "The Production Function for Housing: Evidence from France," Journal of Political Economy, University of Chicago Press, vol. 129(10), pages 2766-2816.
    5. Davis, Morris A. & Oliner, Stephen D. & Pinto, Edward J. & Bokka, Sankar, 2017. "Residential land values in the Washington, DC metro area: New insights from big data," Regional Science and Urban Economics, Elsevier, vol. 66(C), pages 224-246.
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    9. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2021. "The Production Function for Housing: Evidence from France," Journal of Political Economy, University of Chicago Press, vol. 129(10), pages 2766-2816.
    10. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2021. "The Production Function for Housing: Evidence from France," Journal of Political Economy, University of Chicago Press, vol. 129(10), pages 2766-2816.
    11. Gabriel Ahlfeldt & Daniel McMillen, 2014. "New Estimates of the Elasticity of Substitution of Land for Capital," ERSA conference papers ersa14p108, European Regional Science Association.
    12. W. Erwin Diewert & Kiyohiko G. Nishimura & Chihiro Shimizu & Tsutomu Watanabe, 2020. "Property Price Index," Advances in Japanese Business and Economics, Springer, number 978-4-431-55942-9, Fall.
    13. Andreas Hornstein, 2009. "Problems for a fundamental theory of house prices," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 95(Win), pages 1-24.
    14. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2021. "The Production Function for Housing: Evidence from France," Journal of Political Economy, University of Chicago Press, vol. 129(10), pages 2766-2816.
    15. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2021. "The Production Function for Housing: Evidence from France," Journal of Political Economy, University of Chicago Press, vol. 129(10), pages 2766-2816.
    16. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2021. "The Production Function for Housing: Evidence from France," Journal of Political Economy, University of Chicago Press, vol. 129(10), pages 2766-2816.
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    1. Guoliang Xu & Xiaonan Yin & Guangdong Wu & Ning Gao, 2022. "Rethinking the Contribution of Land Element to Urban Economic Growth: Evidence from 30 Provinces in China," Land, MDPI, vol. 11(6), pages 1-16, May.

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    Keywords

    Land; Land value; Land prices; Residential construction costs;
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