Arrested Development: Theory and Evidence of Supply-Side Speculation in the Housing Market

Research output: Contribution to journalArticlepeer-review

7 Scopus citations

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 facilitates construction and intensifies the speculation that causes booms and busts in house prices. This observation challenges the standard intuition that in cities where construction is easier, house price booms are smaller. It can also explain why the largest house price booms in the United States between 2000 and 2006 occurred in areas with elastic housing supply.

Original languageEnglish (US)
Pages (from-to)2587-2633
Number of pages47
JournalJournal of Finance
Volume73
Issue number6
DOIs
StatePublished - Dec 2018

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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