Premium
Arrested Development: Theory and Evidence of Supply‐Side Speculation in the Housing Market
Author(s) -
NATHANSON CHARLES G.,
ZWICK ERIC
Publication year - 2018
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12719
Subject(s) - speculation , boom , intuition , economics , renting , house price , rental housing , supply side , market economy , monetary economics , finance , engineering , civil engineering , philosophy , epistemology , environmental engineering
ABSTRACT This paper studies the role of disagreement in amplifying housing cycles. Speculation is easier in the land market than in the housing market due to frictions that make renting less efficient than owner‐occupancy. As a result, undeveloped land facilitates construction and intensifies the speculation that causes booms and busts in house prices. This observation challenges the standard intuition that in cities where construction is easier, house price booms are smaller. It can also explain why the largest house price booms in the United States between 2000 and 2006 occurred in areas with elastic housing supply.