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The Role of Speculation in Real Estate Cycles

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  • Stephen Malpezzi
  • Susan Wachter

Abstract

This paper develops and simulates a model to examine whether land speculation is primarily a cause of, or a symptom of, property cycles. The model suggests that the volatility of prices—the biggest purported downside of “speculation”—is strongly related to supply conditions. Moreover, while demand conditions in general, and speculation in particular, contribute to boom and bust cycles in housing and real estate markets, the impact of speculation is dominated by the effect of the price elasticity of supply. In fact, the large impacts of speculation are only observed when supply is inelastic.

Suggested Citation

  • Stephen Malpezzi & Susan Wachter, 2005. "The Role of Speculation in Real Estate Cycles," Journal of Real Estate Literature, Taylor & Francis Journals, vol. 13(2), pages 141-164, January.
    • Handle: RePEc:taf:rjelxx:v:13:y:2005:i:2:p:141-164
    DOI: 10.1080/10835547.2005.12090156
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    Cited by:

    1. Maier, Gunther & Herath, Shanaka, 2009. "Real Estate Market Efficiency. A Survey of Literature," SRE-Discussion Papers 2009/07, WU Vienna University of Economics and Business.
    2. Park, Donghyun & Xiao, Qin, 2009. "Housing Prices and the Role of Speculation: The Case of Seoul," ADB Economics Working Paper Series 146, Asian Development Bank.
    3. García Serrano, Carlos, 2012. "Del pasmo al marasmo: El sector de la construcción y su relación con la crisis del empleo/The Construction Sector and its Relationship With the Employment Crisis," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 30, pages 183-182, Abril.
    4. Li-Min Hsueh & Hsi-Peng Tseng & Chang-Chiang Hsieh, 2007. "Relationship Between the Housing Vacancy Rate, Housing Price, and the Moving Rate at the Township Level in Taiwan, in 1990 and 2000," International Real Estate Review, Global Social Science Institute, vol. 10(1), pages 119-150.
    5. Ebrahim, M. Shahid & Mathur, Ike, 2007. "Pricing home mortgages and bank collateral: A rational expectations approach," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1217-1244, April.
    6. Quigley, John M. & Raphael, Steven & Rosenthal, Larry A., 2008. "Measuring Land-Use Regulations and Their Effects in the Housing Market," Berkeley Program on Housing and Urban Policy, Working Paper Series qt07t5d0q4, Berkeley Program on Housing and Urban Policy.
    7. Franz Fuerst & Anna-Maija Grandy, "undated". ""Oft Expectation Fails": A Time-Series Analysis of Construction Starts in the London Office Market," Real Estate & Planning Working Papers rep-wp2010-13, Henley Business School, University of Reading.
    8. Che, Yeon-Koo & Gale, Ian, 2006. "Market versus Non-Market Assignment of Initial Ownership," MPRA Paper 6095, University Library of Munich, Germany, revised 30 May 2006.
    9. Qin Xiao & Gee Kwang Randolph Tan, 2007. "Signal Extraction with Kalman Filter: A Study of the Hong Kong Property Price Bubbles," Urban Studies, Urban Studies Journal Limited, vol. 44(4), pages 865-888, April.
    10. Mynbaev, Kairat & Ibrayeva, Saniya, 2011. "Housing market of Almaty," MPRA Paper 36683, University Library of Munich, Germany.
    11. Ebrahim, M. Shahid, 2009. "Can an Islamic model of housing finance cooperative elevate the economic status of the underprivileged?," Journal of Economic Behavior & Organization, Elsevier, vol. 72(3), pages 864-883, December.
    12. Richard K. Green & Susan M. Wachter, 2007. "The housing finance revolution," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 21-67.
    13. Wei Li, 2008. "Property tax and speculative bubble: An empirical analysis of Tianjin," Psychometrika, Springer;The Psychometric Society, vol. 3(4), pages 627-643, December.
    14. Qin Xiao & Donghyun Park, 2010. "Seoul housing prices and the role of speculation," Empirical Economics, Springer, vol. 38(3), pages 619-644, June.

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