House Prices and Growth with Fixed Land Supply

David Miles and James Sefton

The Economic Journal, 2021, vol. 131, issue 636, 1815-1848

Abstract: We analyse housing costs and patterns of residential development over the long term in a dynamic general equilibrium. We show that in a growing economy the speed of travel improvements is crucial to the evolution of land and house prices. We derive a condition for the rate of change in transport efficiency that generates flat land and house prices on a balanced growth path. We present evidence that this condition was satisfied in many countries between the mid-nineteenth century and the mid-twentieth century, but since then passenger transport improvements have slowed down with major implications for how house prices evolve.

Date: 2021
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