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Land leverage and the housing market: Evidence from Germany1

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  • Kajuth, Florian
Abstract
This paper modifies a conventional empirical macroeconomic model of the housing market to demonstrate the pivotal role of land prices not only for house prices but also for housing supply. Building on the land leverage hypothesis, the impacts of macroeconomic shocks are shown to differ in magnitude but not in sign for the construction and land price component of house prices. We argue that land prices are an important channel of shock transmission to residential investment. The model features a supply response, which is allowed to vary depending on whether the macroeconomic impulses are transmitted via construction or land prices. The positive supply effects of expansionary shocks work via their positive effects on land prices. In contrast, construction price rises in an improving macroeconomic environment tend to dampen residential investment, while they add upward pressure to overall house prices. Through the lens of the model we provide typical elasticities for the German housing market.

Suggested Citation

  • Kajuth, Florian, 2021. "Land leverage and the housing market: Evidence from Germany1," Journal of Housing Economics, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:jhouse:v:51:y:2021:i:c:s1051137720300826
    DOI: 10.1016/j.jhe.2020.101746
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    Cited by:

    1. Brausewetter, Lars & Thomsen, Stephan L. & Trunzer, Johannes, 2022. "Explaining regional disparities in housing prices across German districts," IWH Discussion Papers 13/2022, Halle Institute for Economic Research (IWH).
    2. Hafemann, Lucas, 2023. "A house prices at risk approach for the German residential real estate market," Technical Papers 07/2023, Deutsche Bundesbank.
    3. Haertel, Thomas & Hamburg, Britta & Kusin, Vladimir, 2022. "The macroeconometric model of the Bundesbank revisited," Technical Papers 01/2022, Deutsche Bundesbank.

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    More about this item

    Keywords

    Residential property prices; Residential investment; Land prices;
    All these keywords.

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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