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Fundamental and Speculative Demands for Housing

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  • Weicheng Lian

Abstract

This paper separates the roles of demand for housing services and belief about future house prices in a house price cycle, by utilizing a feature of user-cost-of-housing that it is sensitive to demand for housing services only. Optimality conditions of producing housing services determine user-cost-of-housing and the elasticity of substitution between land and structures in producing housing services. I find that the impact of demand for housing services on house prices is amplified by a small elasticity of substitution, and demand explained four fifths of the U.S. house price boom in the 2000s.

Suggested Citation

  • Weicheng Lian, 2019. "Fundamental and Speculative Demands for Housing," IMF Working Papers 2019/063, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2019/063
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