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The rate of home price appreciation varies substantially among cities. Yet, no prior research on the subject has been uncovered. This paper develops and tests an equilibrium model seeking to explain this interurban variation in owner-occupied home price appreciation. Intercity changes in housing demand, based upon homeowner “quality of life” equilibrium, is represented by several “non-monetary income” determinants in addition to several monetary “real income” determinants. Changes in the supply of homes was found to be primarily dependent upon interurban variation in cost related factors. Empirical tests with a reduced form equation using aggregated 1970 and 1980 data on 92 SMSAs suggest explanation for approximately 70% of this intercity variation in home price appreciation.
Christopher Manning (Wed,) studied this question.
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