Arrested Development: Theory and Evidence of Supply-Side Speculation in the Housing Market

Charles G. Nathanson and Eric Zwick

No 23030, NBER Working Papers from National Bureau of Economic Research, Inc

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 both facilitates construction and intensifies the speculation that causes booms and busts in house prices. This observation reverses the standard intuition that cities where construction is easier experience smaller house price booms. It also explains why the largest house price booms in the United States between 2000 and 2006 occurred in areas with elastic housing supply.

JEL-codes: D84 G12 G14 R31 (search for similar items in EconPapers)
Date: 2017-01
New Economics Papers: this item is included in nep-ure
Note: AP CF EFG ME
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Published as CHARLES G. NATHANSON & ERIC ZWICK, 2018. "Arrested Development: Theory and Evidence of Supply-Side Speculation in the Housing Market," The Journal of Finance, vol 73(6), pages 2587-2633.

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