Housing Prices and Economic Freedom

Abstract

The Economic Freedom Index of North America measures the impact of governmental institutions. The literature finds that economic freedom leads to higher incomes. Economic freedom is a geographically defined benefit, the value of which will be capitalized into real estate values. We hypothesize that more economic freedom should lead to higher home prices, ceteris paribus. Our findings support our hypothesis. Through a variety of direct and indirect effects, economic freedom influences the quality of life. States that are more economically free are more attractive places to live, and the benefits accruing to more economic freedom are capitalized into home prices.

Keywords: housing prices, economic freedom