NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Charles G. Nathanson, Eric Zwick

NBER Working Paper No. 23030
Issued in January 2017
NBER Program(s):   AP   CF   EFG   ME

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.

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Document Object Identifier (DOI): 10.3386/w23030

 
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