Modelling Spatial Housing Markets: Theory, Analysis and Policy

278 Pages·2001·7.58 MB·English

by  Geoffrey Meen (auth.)

MODELLING SPATIAL HOUSING MARKETS
Theory, Analysis and Policy
Advances in Urban and Regional Economics
VOLUME 2
Series Editors:
Richard Amott, Boston College, U.S.A.
Peter Englund, Uppsala University, Sweden
Also in the series:
Papageorgiou, Y. and Pines, D.: AN ESSAY ON URBAN ECONOMIC THEORY
MODELLING SPATIAL HOUSING
MARKETS
Theory, Analysis and Policy
by
Geoffrey Meen
The University of Reading, UK
SPRINGER SCIENCE+BUSINESS MEDIA, LLC
Library of Congress Cataloging-in-Publication Data
Meen, Geoffrey P.
Modelling spatial housing markets : theory, analysis and policy / by Geoffrey
Meen.
p. cm. --(Advances in urban and regional economics ; v.2)
Includes bibliographical references and index.
ISBN 978-1-4613-5671-4 ISBN 978-1-4615-1673-6 (eBook)
DOI 10.1007/978-1-4615-1673-6
1. Housing--Location-Mathematical models. 2. Regional planning-
Mathematical models. 3. Housing policy--Mathematical models. 4. Space
in economics--Mathematical Models. S. H~lusing--Location-Great Britain
Mathematical models 6. Regional Planning-Great Britain--Mathematical.models
7. Housing policy--Great Britain--Mathematical models I. Title. II. Series.
HD7287 .M43 2001
363.5' 01 '5118--dc21 00-140182
Copyright (\) 2001 by Springer Science+Business Media New York
Originally published by Kluwer Academic Publishers in 2001
Softcover reprint ofthe hardcover Ist edition 2001
All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system or transmitted in any form or by any means, mechanical, photo-copying,
recording, or otherwise, without the prior written permission of the publisher,Springer
Science+Business Media, LLC.
Printed on acid-free paper.
For Cathy, David and Julia
Contents
Preface .......................................................................................................... xi
CHAPTER 1 ................................................................................................ 1
1. INTRODUCTION ............... ....... ..... ...... ........ ..... ....... ..... ......... ..... 1
1.1 Introduction........................................................................... 1
1.2 The Scope of the Book .. ............. .... ........... ......... ....... ............ 2
1.2.1 Data and Definitions .... ......... ............ ... ......... ........... ........ 2
1.2.2 Economic Theory and Housing. ....... ......... ..... ........ ......... 4
1.2.3 Empirical Analysis... ............ .... .......... ........ ............... ...... 6
1.2.4 Housing Policy ................................................................ 7
CHAPTER 2 ................................................................................................ 9
2. ISSUES IN HOUSING DATA ANALYSIS ..... ...... ..... ...... .......... 9
2.1 Introduction..... ................... ..... ...... ... ..... ..... ....... ........ ..... ....... 9
2.2 Time-Series Properties of International House
Prices, Construction and Transactions .................................. 10
2.3 The Sub-National (Regional) Level ...................................... 21
2.3.1 Regional Prices ................................................................ 22
2.3.2 New Construction ............................................................ 28
2.4 Metropolitan House Prices ................................................... 30
2.5 Measurement Errors and Biases ........................................... 33
CHAPTER 3 ................................................................................................ 41
3. SELECTED TOPICS IN HOUSING THEORY:
A NATIONAL PERSPECTIVE ................................................... 41
3.1 Introduction ........................................................................... 41
VIJI Contents
3.2 The Determination of House Prices ...................................... 42
3.3 Credit Rationing and Downpayment Constraints .................. 50
3.3.1 Downpayment Constraints .............................................. 52
3.3.2 Credit Constraints and the Conduct of Monetary
Policy .............................................................................. 57
3.4 Lags in prices ....................................................................... 59
3.5 Joint Models of House Prices and Property
Transactions................................... ............... ....................... 64
3.6 Joint Models of Prices and Construction (StockIFlow
Models) ................................................................................ 67
3.7 General Equilibrium Models ............................................... 70
3.8 Concluding Remarks ........................................................... 76
CHAPTER 4 ................................................................................................ 77
4. HOUSING THEORY: REGIONAL ISSUES .............................. 77
4.1 Introduction ........................................................................... 77
4.2 Regional House Price Models .............................................. 78
4.3 Econometric Issues .............................................................. 81
4.3.1 Modelling Spatial Dependence .............. ........ ................ 82
4.3.2 Spatial Coefficient Heterogeneity in Static Models ........ 83
4.3.3 Econometric Issues in Dynamic Heterogeneous
Panels .............................................................................. 84
4.3.4 Aggregation Across Households .................................... 90
4.4 Convergence and Divergence in Regional Housing
Markets ................................................................................ 92
4.4.1 Migration ........................................................................ 92
4.4.2 Transactions and Search Costs ....................................... 95
4.4.3 Equity Transfer .............................................................. 97
4.4.4 Spatial Arbitrage ............................................................ 98
4.4.5 Leads/Lags and Convergence in the Determinants of
House Prices..................... ......... ....................... .............. 98
4.4.6 Coefficient Heterogeneity.............................................. 99
4.5 So Why Do Regional Price Patterns Differ? ........................ 102
CHAPTER 5 ............................................................................................... 103
5. HOUSING CAREERS AND URBAN STRUCTURE ............... 103
5. 1 Introduction ......................................................................... 103
5.2 Some Aspects of Location Theory and Its Extensions ....... 105
5.3 Unemployment in London .................................................. 110
5.4 Urban/Suburban Drift ......................................................... 112
5.5 Individual Housing Careers ................................................ 113
5.5.1 New Household Formation ............................................ 114
Contents ix
5.5.2 Moving Propensities ...................................................... 118
5.5.3 Location Choice ............................................................ 122
CHAPTER 6 ............................................................................................... 125
6. EMPIRICAL FINDINGS FROM NATIONAL HOUSING
MODELS .................................................................................... 125
6.1 Introduction ......................................................................... 125
6.2 House Price Models ............................................................ .126
6.3 Stock-Flow Models of Prices and Construction ................. 138
6.4 House Prices and Transactions ............................................ 147
6.5 Full Models of Housing and the Economy .......................... 156
CHAPTER 7 ............................................................................................... 159
7. EXPLAINING REGIONAL PATTERNS ............................. 159
7.1 Introduction ......................................................................... 159
7.2 What Does the Literature Say? ............................................ 160
7.3 Convergence and Divergence .............................................. 163
7.4 Spatial Coefficient Heterogeneity and the Ripple
Effect ................................................................................... 164
7.5 Debt Gearing and Regional Price Changes ......................... 172
7.6 Spatial Interactions in the USA and Australia .................... 174
CHAPTER 8 ............................................................................................... 177
8. HOUSING, DEPRIVATION AND URBAN CHANGE ............. 177
8.1 Introduction ......................................................................... 177
8.2 Moving and Location in London and South East
England ................................................................................ 178
8.3 Unemployment - Location or Skills? .................................. 183
8.4 Housing and Industrial Location ......................................... 188
8.5 Commuting Behaviour ........................................................ 194
8.6 Conclusions ......................................................................... 196
CHAPTER 9 ............................................................................................... 199
9. SELECTED ISSUES IN NATIONAL HOUSING POLICY ..... 199
9.1 Introduction ......................................................................... 199
9.2 Housing, Consumers' Expenditure and Financial
Liberalisation ....................................................................... 200
9.3 Downpayments, Monetary Policy and Cycles .................... 203
9.3.1 Downpayments and Volatility ....................................... 203
9.3.2 Monetary Policy, Planning and Housing Cycles ........... 209
9.4 Housing and Monetary Union ............................................. 212
9.5 Planning for Household Growth ......................................... 213
x Contents
CHAPTER 10 ............................................................................................. 219
10. SELECTED ISSUES IN REGIONAL AND URBAN
HOUSING POLICY ................................................................... 219
10.1 Introduction ......................................................................... 219
10.2 Regional Evolutions ............................................................ 220
10.3 Relative Prices, Planning and Policy .................................. 222
10.4 Urban Population Dynamics ............................................... 224
10.5 Urban Structure ................................................................... 227
10.5.1 Housing Careers and the Neighbourhood ...................... 228
10.5.2 Tenure Structure ............................................................. 228
10.5.3 Work Patterns and the Distribution of Employment ...... 229
10.6 Is Population Loss from Cities Inevitable? ......................... 229
10.7 Housing and Low-Income Households ............................. 232
10.8 Cumulative Growth and Decline - Some Conclusions ....... 232
CHAPTER 11 ............................................................................................. 235
11. . .. AND FINALLY ...................................................................... 235
REFERENCES ........................................................................................... 237
INDEX ........................................................................................................ 255
Preface
The origins of this book lie in a report on regional house price models,
produced in 1998 for the UK Department of the Environment, Transport and
the Regions (Meen and Andrew 1998a). The report argued that regional
models represented a rather uncomfortable compromise between national
and urban models and, in themselves, were a rather small part of the overall
housing literature. But, if the rationale for regional models was to be
considered properly, then the other spatial dimensions also had to be
surveyed. Therefore, the final report surveyed the range of models from
national to regional to urban that have appeared in the international
literature. One theme of the report was that a single integrated framework for
all spatial dimensions together is not possible, given the current state of
knowledge, although progress can be made.
In fact, rather little of the original report remains in this book, having
been extended in a number of directions. A second major influence has been
a project entitled The Role of Housing in City Economic Performance,
conducted under the Economic and Social Research Council's (ESRC)
integrated programme of work into the competitiveness and cohesion of
cities. Almost all the urban modelling work appearing in Chapters 5 and 8
comes from this project.
The final influence comes from a growing unease with aggregate,
macroeconomic models of housing markets. In the UK, concern with house
prices has become almost a national obsession and economists are not
immune. This is reflected in the large number of time-series models of house
prices that have been estimated. But the UK, in common with many other
countries, has undergone important structural changes, particularly in the
labour market, which affect the income distribution. These changes in the