Fundamental and Speculative Demands for Housing

Weicheng Lian

No 2019/063, IMF Working Papers from International Monetary Fund

Abstract: This paper separates the roles of demand for housing services and belief about future house prices in a house price cycle, by utilizing a feature of user-cost-of-housing that it is sensitive to demand for housing services only. Optimality conditions of producing housing services determine user-cost-of-housing and the elasticity of substitution between land and structures in producing housing services. I find that the impact of demand for housing services on house prices is amplified by a small elasticity of substitution, and demand explained four fifths of the U.S. house price boom in the 2000s.

Keywords: WP; production function; Asset Bubbles; Belief; Housing Cycles; Land Prices; Land Share; housing demand shocks; structure price; housing service; services production function; consumption goods; house price trend; price change; Housing; Housing prices; Price structures; Consumption (search for similar items in EconPapers)
Pages: 54
Date: 2019-03-19
New Economics Papers: this item is included in nep-ure
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