Working Paper: NBER ID: w23030
Authors: Charles G. Nathanson; Eric Zwick
Abstract: This paper studies the role of disagreement in amplifying housing cycles. Speculation is easier in the land market than in the housing market due to frictions that make renting less efficient than owner-occupancy. As a result, undeveloped land both facilitates construction and intensifies the speculation that causes booms and busts in house prices. This observation reverses the standard intuition that cities where construction is easier experience smaller house price booms. It also explains why the largest house price booms in the United States between 2000 and 2006 occurred in areas with elastic housing supply.
Keywords: Housing Market; Disagreement; Speculation; Supply-Side; Land Prices
JEL Codes: D84; G12; G14; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| disagreement (D74) | housing prices (R31) |
| disagreement (D74) | housing prices (in intermediate cities) (R31) |
| optimistic developers (O00) | housing prices (R31) |
| initial demand (J23) | housing prices (R31) |
| speculation among developers (D84) | housing prices (R31) |
| disagreement reallocates housing (R21) | welfare losses (D69) |