House Prices, Bubbles and City Size

32 Pages Posted: 19 Aug 2010

See all articles by Mark Thissen

Mark Thissen

PBL Netherlands Environmental Assessment Agency (Bilthoven)

Martijn J. Burger

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Erasmus Research Institute of Management (ERIM)

Frank G. van Oort

University of Utrecht

Date Written: 15 2010 7,

Abstract

We build a theoretical model that relates house price, city size and the expected future growth of demand for housing. Our model combines the Alonso-Mills model on urban economics with insights from financial economics on house prices. Estimating the model for cities in the US, we empirically validate the positive effect of city size on urban house prices. Moreover, our estimations confirm that an (unrealistic) increase in the expected growth of demand fuelled by the widespread availability of credit provides a better explanation for the recent bubble than inelastic housing supply that explained earlier bubbles.

Keywords: house prices, bubbles, city size

JEL Classification: M13, O32, M

Suggested Citation

Thissen, Mark and Burger, Martijn J. and van Oort, Frank, House Prices, Bubbles and City Size (15 2010 7,). ERIM Report Series Reference No. ERS-2010-030-ORG, Available at SSRN: https://ssrn.com/abstract=1660907

Mark Thissen (Contact Author)

PBL Netherlands Environmental Assessment Agency (Bilthoven) ( email )

Antonie van Leeuwenhoeklaan 9
Bilthoven, 3721 MA
Netherlands

Martijn J. Burger

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

Burg. Oudlaan 50
Rotterdam, NL 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Frank Van Oort

University of Utrecht ( email )

Vredenburg 138
NL-3508 TC Utrecht, 3511 BG
Netherlands

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