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Housing Dynamics: Theory Behind Empirics

Author

Listed:
  • Ping Wang
  • Danyang Xie
Abstract
To fill the knowledge gap that previous studies ignore either housing or internal urban structure and to enable better fit with important stylized facts, we construct a two-sector optimal growth model of housing where housing is produced by land and housing structure/household durables. We explicitly model within-city locational choice. Housing services derive positive utility but are decayed away from the city center. Our model enables a full characterization of the dynamic paths of housing and housing and land prices. The model is then calibrated to fit part of the stylized facts: faster growth of housing structure/household durables than housing, faster growth of land prices than housing prices, and downward housing price and land rent gradients within a city. The calibrated model can then be used to predict the remaining untargeted part of stylized facts: a locationally steeper land rent gradient than the housing price gradient, relatively flatter housing quantity and price gradients in larger cities with flatter population gradients and moderate rise in the housing expenditure share. The calibrated model can be further used to yield additional insights on housing dynamics and spatial distribution. We find nonhomotheticities in housing preference and housing production are crucial for realistic model predictions.

Suggested Citation

  • Ping Wang & Danyang Xie, 2022. "Housing Dynamics: Theory Behind Empirics," NBER Working Papers 30516, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30516
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    Cited by:

    1. Charles Ka Yui Leung & Joe Cho Yiu Ng, 2018. "Macro Aspects of Housing," GRU Working Paper Series GRU_2018_016, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    2. Gong, Yifan & Leung, Charles Ka Yui, 2024. "Does space matter? The case of the housing expenditure cap," Regional Science and Urban Economics, Elsevier, vol. 104(C).
    3. Charles Ka Yui LEUNG, 2022. "Housing and Macroeconomics," ISER Discussion Paper 1197, Institute of Social and Economic Research, Osaka University.
    4. Huang, Daisy J. & Leung, Charles K. & Qu, Baozhi, 2015. "Do bank loans and local amenities explain Chinese urban house prices?," China Economic Review, Elsevier, vol. 34(C), pages 19-38.
    5. Saha, Anuradha, 2023. "Land and housing: The twin forces of non-balanced growth," Journal of Macroeconomics, Elsevier, vol. 76(C).
    6. Yang, Xiaozhong & Zhang, Cheng, 2023. "Travelling for public goods, neighborhood effect and spatial stratification," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 128-139.
    7. Yang, Xiaozhong & Zhang, Cheng, 2022. "Spatial investments in the real estate industry: Based on the population flow within the city," Journal of Business Research, Elsevier, vol. 140(C), pages 593-603.

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    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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