Working Paper: NBER ID: w12355
Authors: Joseph Gyourko; Christopher Mayer; Todd Sinai
Abstract: Differences in house price and income growth rates between 1950 and 2000 across metropolitan areas have led to an ever-widening gap in housing values and incomes between the typical and highest-priced locations. We show that the growing spatial skewness in house prices and incomes are related and can be explained, at least in part, by inelastic supply of land in some attractive locations combined with an increasing number of high-income households nationally. Scarce land leads to a bidding-up of land prices and a sorting of high-income families relatively more into those desirable, unique, low housing construction markets, which we label "superstar cities." Continued growth in the number of high-income families in the U.S. provides support for ever-larger differences in house prices across inelastically supplied locations and income-based spatial sorting. Our empirical work confirms a number of equilibrium relationships implied by the superstar cities framework and shows that it occurs both at the metropolitan area level and at the sub-MSA level, controlling for MSA characteristics.
Keywords: Superstar Cities; Housing Prices; Income Distribution
JEL Codes: R0; J0; D4; N9
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Inelastic land supply (R31) | Higher house prices (R31) |
| Increase in high-income households (D19) | Higher house prices (R31) |
| Limited supply of housing (R31) | Increased demand in superstar cities (R22) |
| Increased demand in superstar cities (R22) | Higher house prices (R31) |
| Superstar cities (R12) | Higher long-run house price growth (R31) |
| Increase in high-income households (D19) | Rightward shift in income distribution (D31) |
| Higher income distribution skew (D31) | Higher average incomes (J31) |