Clustered housing cycles

• Published in: Regional science and urban economics Vol. 66; pp. 185 - 197
• Main Authors: Hernández-Murillo, Rubén, Owyang, Michael T., Rubio, Margarita
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01-09-2017; Elsevier Sequoia S.A
• Subjects: Analogies; Availability; Building permits; Business cycles; Cities; Cluster analysis; Clustered Markov switching; Co-movements; Elasticity; Housing; Land; Population growth; Studies; Supply & demand; United States > US; Building permits; R31; C11; C32; Clustered Markov switching; Business cycles; E32; Co-movements
• ISSN: 0166-0462; 1879-2308
• DOI: 10.1016/j.regsciurbeco.2017.06.003

Using a panel of U.S. city-level building permits data, we estimate a Markov-switching model of housing cycles that allows cities to systematically deviate from the national housing cycle. These deviations occur for clusters of cities that experience simultaneous housing contractions. We find that cities do not form housing regions in the traditional geographic sense. Instead, similarities in factors affecting the demand for housing (such as population growth or availability of credit) appear to be more important determinants of cyclical co-movements than similarities in factors affecting the supply for land (such as the availability of developable land or the elasticity of land supply).
•We analyze a panel of US cities that experience simultaneous housing contractions.•We estimate a Markov-switching model of housing cycles using building permits data.•City clusters may experience idiosyncratic departures from a national housing cycle.•Cluster formation is not influenced by traditional geographic factors.•Instead, similarities in housing demand factors are more important determinants.