The Effect of Land Leverage on House Sale Probability and Price

Abstract

In this paper, we investigate the extent to which a property's ratio of land value to total value (land leverage) affects its sale probability and sale price. Our theory predicts that both house sale probability and price should be enhanced when land leverage is high. We test our hypotheses using comprehensive data on a sample of properties listed for sale in Wellington, New Zealand between 2013 and 2019. Sale outcome (sold or not) and price are jointly estimated via a sample selection model. The estimates show that, as hypothesised, holding total assessed value constant, an increase in land leverage increases the sale probability and price.

Keywords: Land leverage, House Sale Probability, House Prices, Sample Selection