The Value of Residential Land and Structures during the Great Housing Boom and Bust

Housing—comprised of land and the physical structures on that land—is one of the most important sources of wealth in the United States. The recent housing boom and bust has shown how volatile this source of wealth can be. In this study, we examine how the value of residential land and structures evolved during the boom and bust using data on more than a million single-family houses that were sold in ten metropolitan areas between 1998 and 2009. We develop a new hedonic estimator that allows us to disentangle the market value of land and structures at a local (Census tract) level.

Our microeconometric model is consistent with spatial variation in land values arising from access to local public goods and job locations. The resulting estimates allow us to document that: (i) there is substantial heterogeneity in the market value of land and structures within metro areas; (ii) spatial variation in the supply elasticity of land is sufficient to explain heterogeneity in the evolution of land values across metro areas, but not within metro areas; (iii) during the peak of the boom, there were significant premiums attached to the market value of structures in high-amenity neighborhoods.