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How important are land values in house price growth? Evidence from Canadian cities
Author(s) -
Stewart Kenneth G.
Publication year - 2022
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12585
Subject(s) - economics , land values , returns to scale , cobb , scale (ratio) , econometrics , constant (computer programming) , quality (philosophy) , house price , work (physics) , land use , set (abstract data type) , microeconomics , geography , production (economics) , ecology , mechanical engineering , genetics , cartography , engineering , epistemology , computer science , programming language , biology , philosophy
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 find 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.