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Housing Appreciation and Marginal land Supply in Monocentric Cities with Topography

Thomas Davidoff

University of British Columbia

 

Abstract: An enriched monocentric model of housing appreciation and marginal land supply is constructed and estimated. In its initial version the exogenous fraction of buildable land is a power function of radial distance from the city center. Thereby, the marginal supply of land on the periphery of the city can change with radial distance. In the second version the buildable fraction is endogenized. This generalizes previous models in which the fraction of buildable land is both exogenous and independent of radial distance. In both versions the constant appreciation rate of housing decreases in the exponent of the power function. Only in the second version can it also depend on its coefficient. Empirical results are consistent with the latter version. Conditional on the growth rate of housing demand, housing appreciation has the predicted relationship with the exponent. The corresponding relationship between the appreciation rate, the coefficient, and hence average land supply can be attributed partly to endogenous development on slopes and near water.

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