Keywords: Home prices, land prices, construction costs, value of residential land, metropolitan areas
Abstract: Combining data from several sources, we build a database of home values, the cost
of housing structures, and residential land values for 46 large U.S. metropolitan
areas from 1984 to 2004. Our analysis of these new data reveal that since the
mid-1980s residential land values have appreciated over a much wider range of cities
than is commonly believed. And, since 1998, almost all large U.S. cities have seen
significant increases in real residential land prices. Averaging across the cities
in our sample, by year-end 2004, the value of residential land accounted for about
50 percent of the total market value of housing, up from 32 percent in 1984.
An implication of our results is that the future course of home prices--their
average rate of appreciation and their volatility--is likely to be determined
even more by the course of land prices than used to be the case.
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Last update: June 16, 2006