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Dynamic Equilibrium of the Housing Market

Author

Listed:
  • Raymond Y. C. Tse

    (Department of Building and Real Estate, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, bsrtse@polyu.edu.hk.)

  • James R. Webb

    (Department of Building and Real Estate, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, j.webb@popmail. csuohio.edu.)

Abstract

This paper, derived within a general equilibrium framework, demonstrates that housing price can be explicitly expressed as a combination of an exponential and linear function of housing rental. This model provides an explanation as to why housing appreciation may not match inflation in the long-run steady state. We show that only under a very particular set of conditions, will housing prices grow at a rate greater than the inflation rate. Evidence from the Hong Kong housing market supports the predictions of theory. Our model indicates that the housing market will be in the long-run steady state when the rent-value ratio is equal to the net discount rate.

Suggested Citation

  • Raymond Y. C. Tse & James R. Webb, 1999. "Dynamic Equilibrium of the Housing Market," Urban Studies, Urban Studies Journal Limited, vol. 36(13), pages 2361-2373, December.
    • Handle: RePEc:sae:urbstu:v:36:y:1999:i:13:p:2361-2373
    DOI: 10.1080/0042098992467
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    References listed on IDEAS

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