Dynamic Equilibrium of the Housing Market

Raymond Y. C. Tse and James R. Webb
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Raymond Y. C. Tse: Department of Building and Real Estate, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, bsrtse@polyu.edu.hk.
James R. Webb: Department of Building and Real Estate, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, j.webb@popmail. csuohio.edu.

Urban Studies, 1999, vol. 36, issue 13, 2361-2373

Abstract: This paper, derived within a general equilibrium framework, demonstrates that housing price can be explicitly expressed as a combination of an exponential and linear function of housing rental. This model provides an explanation as to why housing appreciation may not match inflation in the long-run steady state. We show that only under a very particular set of conditions, will housing prices grow at a rate greater than the inflation rate. Evidence from the Hong Kong housing market supports the predictions of theory. Our model indicates that the housing market will be in the long-run steady state when the rent-value ratio is equal to the net discount rate.

Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:sae:urbstu:v:36:y:1999:i:13:p:2361-2373

DOI: 10.1080/0042098992467

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