Amazon HQ2: A Tale of Shocks to Housing Price Expectations

The measurement of the contribution of expectations to house prices is unresolved in the macro-housing literature. We leverage a novel quasi-natural experiment using Amazon’s unanticipated split location decision for its second headquarters to identify the impact of this expectations shock on local house prices, seller expectations and market liquidity. We find that listed and transacted prices increased on average 7.9% and 7.5%, respectively in the six months following the announcement. Furthermore, price gains were common across all market segments and the announcement had no effect on rents. We develop a tractable general equilibrium macro-housing model featuring mortgages and endogenous housing supply able to replicate the response of the price-rent ratio to an expectations shock. The model quantifies the differences between credit and expectations shocks and generates testable predictions for identifying the nature of a housing price shock. Our empirical and theoretical results provide a benchmark test for structural models that attempt to incorporate shocks to price expectations.