Christopher J. Mayer
Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)
University of Pennsylvania - Real Estate Department; National Bureau of Economic Research (NBER)
Todd M. Sinai
University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)
June 16, 2006
Differences in house price and income growth rates between 1950 and 2000 across metropolitan areas have led to an ever-widening gap in housing values and incomes between the typical and highest-priced locations. We show that the growing spatial skewness in house prices and incomes are related and can be explained, at least in part, by inelastic supply of land in some attractive locations combined with an increasing number of high-income households nationally. Scarce land leads to a bidding-up of land prices and a sorting of high-income families relatively more into those desirable, unique, low housing construction markets, which we label "superstar cities." Continued growth in the number of high-income families in the U.S. provides support for ever-larger differences in house prices across inelastically supplied locations and income-based spatial sorting. Our empirical work confirms a number of equilibrium relationships implied by the superstar cities framework and shows that it occurs both at the metropolitan area level and at the sub-MSA level, controlling for MSA characteristics.
Number of Pages in PDF File: 53
Keywords: house prices, income inequality, housing supply
JEL Classification: R0, J0, D4, N9working papers series
Date posted: August 2, 2006
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