Is Urban Land Price Adjustment More Sluggish than Housing Price Adjustment? Empirical Evidence

: Oikarinen E

Publisher: SAGE

: 2014

: Urban Studies

: 51

: 8

: 1686

: 1706

: 21

: 0042-0980

DOI: https://doi.org/10.1177/0042098013497409

: http://usj.sagepub.com/content/51/8/1686.abstract

This article hypothesises that, due to factors such as thin trading and lack of publicly
available data on transactions in the land market, urban land prices react more sluggishly to shocks in market fundamentals than housing prices do. Based on a vector error-correction model utilising quarterly data for the Helsinki Metropolitan Area in Finland over 1988Q1–2008Q2, the empirical analysis provides support for this
hypothesis. In particular, the results suggest that new information regarding the market fundamentals is more rapidly reflected in housing prices than in land prices.
Nevertheless, it is the housing price level, instead of land prices, that adjusts towards
a cointegrating long-run equilibrium between housing prices, land prices and
construction costs.