Essays on Housing Dynamics

Abstract

Housing price dynamics are important for the macro economy, with the Great Recession being a good example. Two salient features about the United States national housing price are: (1) an upward trend of 1.3% annual growth from 1960 to 2013, and (2) a strong boom and bust cycle in the 2000s. Many studies debate on the mechanisms behind these features. Consensus, however, has not been achieved. This dissertation studies the two features in two chapters. In Chapter One, I quantify the relative importance of the major factors which affect the housing price trend in the United States. I find that an interaction between limitation in land development and general productivity growth is the dominating force for the trend, while rising construction costs and the Baby Boom and Bust have limited impacts. Chapter Two studies the boom and bust cycle by noticing that a decline of the down payment requirement for first-time buyers and an increase of the public expectation of long-term productivity growth led the cycle and both changes were reversed later during the housing bust. I find that to quantify the impact of these changes on the cycle should take into account heterogeneity of elasticity of inter-temporal substitution among households.