Land Leverage and House Prices

42 Pages Posted: 1 Dec 2010  

Martin Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM); University of Aberdeen - Business School; Swiss Finance Institute; University of Geneva - Geneva Finance Research Institute

Steven C. Bourassa

Florida Atlantic University

Donato Scognamiglio

affiliation not provided to SSRN

Sumei Zhang

University of Louisville - School of Urban & Public Affairs

Multiple version iconThere are 2 versions of this paper

Date Written: November 29, 2010

Abstract

A house is a bundle of land and improvements, with the weights of the two components varying both over time and across locations. We capture the land intensity or leverage of a property by measuring the ratio of land to total value. This is accomplished using transactions data for single-family homes in Switzerland over the period 1978 to 2008. We show how to use hedonic models to develop time series of land prices and land leverage. Then we estimate error correction models for both house prices and land leverage. We show the importance of incorporating land leverage when assessing the determinants of house prices. House price changes are shown to be affected by changes in land leverage, real GDP per capita, growth of the population aged 30 to 49, and the term spread, while land leverage changes are a function of changes in real GDP per capita, in real construction costs, and in the term spread.

JEL Classification: R3

Suggested Citation

Hoesli, Martin and Bourassa, Steven C. and Scognamiglio, Donato and Zhang, Sumei, Land Leverage and House Prices (November 29, 2010). 46th Annual AREUEA Conference Paper. Available at SSRN: https://ssrn.com/abstract=1717021 or http://dx.doi.org/10.2139/ssrn.1717021

Martin Edward Ralph Hoesli (Contact Author)

University of Geneva - Geneva School of Economics and Management (GSEM) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

University of Aberdeen - Business School ( email )

Edward Wright Building
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Aberdeen, Scotland AB24 3QY
United Kingdom
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

Swiss Finance Institute ( email )

24 rue du Général-Dufour
Geneva, CH - 1211
Switzerland

University of Geneva - Geneva Finance Research Institute ( email )

Geneva
Switzerland

Steven C. Bourassa

Florida Atlantic University ( email )

777 Glades Road
Boca Raton, FL 33431
United States
5028077642 (Phone)

Donato Scognamiglio

affiliation not provided to SSRN ( email )

Sumei Zhang

University of Louisville - School of Urban & Public Affairs ( email )

Louisville, KY 40292
United States

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