Land Leverage: Decomposing Home Price Dynamics
34 Pages Posted: 26 Jan 2006
Date Written: June 2006
Abstract
This paper argues for the importance of separating the bundled good of housing into land and improvements, because locational amenities - which often constitute a significant portion of property value - are typically capitalized into the value of land but not the value of the physical structure on a parcel of land. This means that changes in overall property value will depend critically on how much of its value is represented by land value, a proportion we call land leverage. The importance of this deconstruction is demonstrated by highlighting how land leverage helps to explain variation in house price appreciation in Wichita, Kansas. The use of Wichita to demonstrate a land leverage effect is noteworthy, because its house price dynamics bias the analysis against finding a land leverage effect - the effect of land leverage is likely to more pronounced in larger urban areas. Noting that land leverage should be relevant for many real estate issues and policies, we highlight four specific areas where consideration of land leverage could significantly improve our understanding of real estate markets.
Keywords: Housing prices, land, home price index
JEL Classification: R00, R21, R31, R11
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Aging, Moving, and Housing Wealth
By Steven F. Venti and David A. Wise
-
Aging and the Income Value of Housing Wealth
By Steven F. Venti and David A. Wise
-
By Steven F. Venti and David A. Wise
-
Aging and Housing Equity: Another Look
By Steven F. Venti and David A. Wise
-
But They Don't Want to Reduce Housing Equity
By Steven F. Venti and David A. Wise
-
The Dynamics of Housing Demand by the Elderly: Wealth, Cash Flow, and Demographic Effects
-
The Housing Wealth of the Aged
By Louise Sheiner and David N. Weil
-
The Wealth of Cohorts: Retirement Saving and the Changing Assets of Older Americans
By Steven F. Venti and David A. Wise