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Implications of intertemporal optimization for house and land prices

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  • Christopher Tsoukis
  • Ahmed Alyousha

Abstract

The Euler equation is used for the intertemporal allocation of durable goods in conjunction with a simple model of housing flow supply to derive implications for the relation between house and land prices. Data from England and Wales fails a key time series test in this respect. The rejection of the theory is shown to be mainly due to the specification of the housebuilding industry: perfect competition makes house prices cointegrated with land prices and housebuilding costs. There is also evidence that borrowing constraints impair the validity of the representative-agent framework for the housing sector.

Suggested Citation

  • Christopher Tsoukis & Ahmed Alyousha, 1999. "Implications of intertemporal optimization for house and land prices," Applied Economics, Taylor & Francis Journals, vol. 31(12), pages 1565-1571.
    • Handle: RePEc:taf:applec:v:31:y:1999:i:12:p:1565-1571
    DOI: 10.1080/000368499323085
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    References listed on IDEAS

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    1. Gonzalo, Jesus & Lee, Tae-Hwy, 1998. "Pitfalls in testing for long run relationships," Journal of Econometrics, Elsevier, vol. 86(1), pages 129-154, June.
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    1. Fan, Jianshuang & Zhou, Lin & Yu, Xiaofen & Zhang, Yanjiang, 2021. "Impact of land quota and land supply structure on China’s housing prices: Quasi-natural experiment based on land quota policy adjustment," Land Use Policy, Elsevier, vol. 106(C).

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