Housing productivity and the social cost of land-use restrictions

This paper illustrates how to incorporate forward-looking behavior into empirical spatial equilibrium models with locational heterogeneity. The main insight is that the standard spatial equilibrium already embeds a natural starting point for dynamics: the presence of spatial indifference conditions can dramatically simplify the state space of forward-looking agents. One needs to know how utility evolves with the variables in the system, but not every individual state, effectively side-stepping the curse of dimensionality. Standard numerical rational expectations methods can be applied to derive approximate solutions to the full dynamic specification. The paper uses an example model of landowners exercising real options in construction of housing to show how the approximation's errors are negligibly small, and importantly, much smaller than the differences between dynamic and myopic specifications of the same model.

Section: Production and Input Factorsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

An Approach for Empirical Work in Spatial Dynamics

Mangum

2017

“…The basic parameter values are taken from Albouy (2009Albouy ( , 2016. Perhaps most notable is the income share to wages of 75 percent, taken from Krueger (1999), and the share of income to land of 10 percent.…”

Section: Parameterization C1 Chosen Valuesmentioning

confidence: 99%

Valuing Public Goods More Generally: The Case of Infrastructure

Albouy¹,

Farahani²

2017

Self Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in ABSTRACTWe examine the relationship between local public goods, prices, wages, and population in an equilibrium inter-city model. Non-traded production, federal taxes, and imperfect mobility all affect how public goods (or "amenities" more broadly) should be valued from data. Reinterpreting the estimated effects of public infrastructure on prices and wages in Haughwout (2002), we find infrastructure over twice as valuable with our more general model. New estimates based on more years, cities, and data-sets indicate stronger wage and positive population effects of infrastructure. These imply higher values of infrastructure to firms, and also to households if moving costs are substantial.JEL Classification Codes: H54, H2, H4, J3, R2

“…3 The secular increase in the house price dispersion in the U.S. has been the ongoing focus of empirical and theoretical research. Glaeser and Gyourko (2003), Glaeser et al (2005), Quigley and Raphael (2005), Ihlanfeldt (2007) and Albouy and Ehrlich (2018) …nd that areas with faster than average growth in house prices tend to have more restrictions on residential land-use. 4 Recently, Hsieh and Moretti (2015) and Herkenho¤ et al (2018), go beyond the analysis of house prices and examine the impact of land-use regulations on spatial labor allocation.…”

Section: Introductionmentioning

confidence: 99%

Land Use Regulations, Migration and Rising House Price Dispersion in the U.S.

Cun

Pesaran

2018

This paper develops and solves a dynamic spatial equilibrium model of regional housing markets in which house prices are jointly determined with location-to-location migration flows. Agents optimize period-by-period and decide whether to remain where they are or migrate to a new location at the start of each period. The agent's optimal location choice and the resultant migration process is shown to be Markovian with the transition probabilities across all location pairs given as non-linear functions of wage and housing cost differentials, which are time varying and endogenously determined. On the supply side, in each location the construction firms build new houses by combining land and residential structures; with housing supplies endogenously responding to migration flows. The model can be viewed as an example of a dynamic network where regional housing markets interact with each other via migration flows that function as a source of spatial spill-overs. It is shown that the deterministic version of the model has a unique equilibrium and a unique balanced growth path. We estimate the state-level supplies of new residential land from the model using housing market and urban land acreage data. These estimates are shown to be significantly negatively correlated with the Wharton Residential Land Use Regulatory Index. The model can simultaneously account for the rise in house price dispersion and the interstate migration in the U.S.. Counterfactual simulations suggest that reducing either land supply differentials or migration costs could significantly lower house price dispersion.