Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/233269
Year of Publication: 
2009
Series/Report no.: 
Discussion paper No. 53
Publisher: 
Aboa Centre for Economics (ACE), Turku
Abstract: 
The price of vacant land zoned for housing is expected to be tightly linked to housing prices. In informationally efficient markets, vacant lot price movements should not lag changes in housing prices. In practice, however, the leading role of housing appreciation with respect to vacant lot price growth may be caused by factors such as thin trading and lack of publicly available data on transactions in the lot market. Based on a vector error-correction model employing quarterly data from the Helsinki Metropolitan Area over 1988Q1-2008Q2, this study shows that housing price movements lead price changes in the market for vacant lots and housing prices react to shocks in the demand side fundamentals more rapidly than lot prices. Overall, the empirical results give support to the hypothesis that house prices respond to shocks influencing the value of developed land first, after which the price level of vacant lots reacts to the information revealed by housing prices. Hence, the results indicate that the market for lots is more informationally inefficient than the housing market. Furthermore, the empirical findings suggest that construction costs too react to income and interest rate shocks.
Subjects: 
Housing
land
lot prices
dynamics
construction costs
JEL: 
R31
R32
E31
Document Type: 
Working Paper

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