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

Abstract

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.

Interregional migration, the housing market, and a spatial shift in the metro area: Interrelationships in the case study of Moscow

“…Over the last 50 years, an expressed dependence of the city development trajectory (employment dynamics, nominal wages, housing prices, housing supply, the migration inflow, and the population) on the rigidity of construction regulation has formed in the United States (Hilber, Rouwendal, & Vermeulen, 2014;Zabel, 2009). The dispersion of housing prices and the level of labour market integration are significantly affected by the regulation regime of land and real estate markets in the largest cities and MSA (Cun & Pesaran, 2018;Ganong & Shoag, 2017;Gyourko, Mayer, & Sinai, 2013) through housing prices (Modestino & Dennett, 2012;Plantinga, Détang-Dessendre, Hunt, & Piguet, 2013). The influence of housing price affordability on migration from rural to urban areas has also been shown for China (Garriga et al, 2017;Xin & Weihua, 2016).…”

Estimation and inference for spatial models with heterogeneous coefficients: An application to US house prices

“…For a theoretical analysis of the interactions between regional house prices, migration flows and income shocks seeCun and Pesaran (2018).14 The authors would like to thank Cynthia Yang for providing them with the updated dataset originally used inYang (2018).15 The February 2013 delineation states that 'metropolitan statistical areas have at least one urbanised area of 50,000 or more population, plus adjacent territory that has a high degree of social and economic integration with the core as measured by commuting ties'. For further details see:https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/bulletins/2013/b13-01.pdf 16 This excludes the non-contiguous states of Alaska (2 MSAs) and Hawaii (2MSAs) and all other off-shore insular areas.17 The quarterly figures for nominal house prices (HP ) are arithmetic averages of monthly observations of HP .…”