Land price dynamics in a large Australian urban housing market
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Purpose – Housing is a composite asset comprising land and improved components varying as proportions of total value over space and time. Theory suggests land and improvements (structures) are unique goods responding differently to economic stimuli. This paper aims to test the expectation of different overall house price changes in response to variation in land and improved components. Design/methodology/approach – House price dynamics are decomposed to analyse the influence of land and structure components for the city of Perth, Australia both at aggregate level and for spatially defined housing sub-regions, sample period 1995-2010. Findings – Values of land and improvements on that land evolve differently over time and are significantly influenced by the magnitude of land leverage. The study extends previous research through extensive spatial disaggregation of a larger more detailed data set than previously used in studies of this type confirming significant variation in land leverage ratios, overall price change and growth rates for land and improvements in sub-regional markets defined by spatial criteria.Research limitations/implications – The results suggest an important role for policy development with respect to housing affordability and supply side regulation of land in large urban housing markets. Practical implications – The results suggest important implications for hedonic price analysis of housing markets. The inclusion of land leverage variables in hedonic regression could remove coefficient bias associated with omitted location amenity variables. Originality/value – The paper adapts methodology from previous studies but extends previous literature through detailed analysis of a large Australian housing market (Perth) enabling extensive spatial disaggregation of the sample and providing greater insight to spatial variation of land leverage than in previous studies.
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