The Geography Channel of House Price Appreciation

Fisher College of Business Working Paper No. 2018-03-017

Charles A. Dice Center Working Paper No. 2018-17

45 Pages Posted: 23 Aug 2018

See all articles by Greg Howard

Greg Howard

University of Illinois at Urbana-Champaign

Carl Liebersohn

Ohio State University (OSU) - Fisher College of Business

Date Written: August 17, 2018

Abstract

We develop a theory whereby increased demand for living in housing-supply-inelastic regions raises aggregate house prices, and we show that this channel contributed significantly to the U.S. house price boom from 2000 to 2006. As an example of our framework, we show that a decline in manufacturing, an industry concentrated in elastic areas, raises national house prices. Our framework also predicts that changes in the price-rent ratio, from interest rates or other changes in the mortgage market, increase relative locational demand for high-rent areas, which are typically inelastic. Changes in locational demand therefore fill in a missing link between changes in aggregate credit conditions and aggregate house prices. We show evidence of this in the data.

Keywords: housing supply elasticity, migration, housing boom

JEL Classification: R23, E31, R31

Suggested Citation

Howard, Greg and Liebersohn, Carl, The Geography Channel of House Price Appreciation (August 17, 2018). Charles A. Dice Center Working Paper No. 2018-17. Available at SSRN: https://ssrn.com/abstract=3236189 or http://dx.doi.org/10.2139/ssrn.3236189

Greg Howard

University of Illinois at Urbana-Champaign ( email )

Carl Liebersohn (Contact Author)

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

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