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This paper explores the properties of dynamic aggregate housing models. In conventional models, in response to demand shocks the primary adjustment mechanism is through prices and changes in housing supply. However, the size of the supply response depends on the price elasticity of supply and in countries such as the UK where the elasticity is low, house prices can rise sharply, worsening affordability. But this ignores the roles of housing risk and credit markets which affect the user cost of capital and the paper demonstrates that models that explicitly introduce a housing risk premium have an additional price stabiliser. The importance is shown through stochastic simulations; these simulations also demonstrate that conventional models used for forecasting and policy analysis may overstate future house price growth. [ABSTRACT FROM AUTHOR]

Recently, a literature has emerged using empirical techniques to study the evolution of international cities over many centuries; however, few studies examine long-run change within cities. Conventional models and concepts are not always appropriate and data issues make long-run neighbourhood analysis particularly problematic. This paper addresses some of these points. First, it discusses why the analysis of long-run urban change is important for modern urban policy and considers the most important concepts. Second, it constructs a novel data set at the micro level, which allows consistent comparisons of London neighbourhoods in 1881 and 2001. Third, the paper models some of the key factors that affected long-run change, including the role of housing. There is evidence that the relative social positions of local urban areas persist over time but, nevertheless, at fine spatial scales, local areas still exhibit change, arising from aggregate population dynamics, from advances in technology, and also from the effects of shocks, such as wars. In general, where small areas are considered, long-run changes are likely to be greater, because individuals are more mobile over short than long distances. Finally, the paper considers the implications for policy. [ABSTRACT FROM AUTHOR]

This introduction to the virtual special issue surveys the development of spatial housing economics from its roots in neoclassical theory, through more recent developments in social interactions modelling, and touching on the role of institutions, path dependence and economic history. The survey also points to some of the more promising future directions for the subject that are beginning to appear in the literature. The survey covers elements of hedonic models, spatial econometrics, neighbourhood models, housing market areas, housing supply, models of segregation, migration, housing tenure, subnational house price modelling including the so-called ripple effect, and agent-based models. Possible future directions are set in the context of a selection of recent papers that have appeared in Urban Studies. Nevertheless, there are still important gaps in the literature that merit further attention, arising at least partly from emerging policy problems. These include more research on housing and biodiversity, the relationship between housing and civil unrest, the effects of changing age distributions – notably housing for the elderly – and the impact of different international institutional structures. Methodologically, developments in Big Data provide an exciting framework for future work. [ABSTRACT FROM AUTHOR]

A review of the article "Neoliberalism and the City: Or the Failure of Market Fundamentalism" by Mike Berry, which appears in the same issue, is presented.

Much of mainstream economic analysis assumes that markets adjust smoothly, through prices, to changes in economic conditions. However, this is not necessarily the case for local housing markets, whose spatial structures may exhibit persistence, so that conditions may not be those most suited to the requirements of modern-day living. Persistence can arise from the existence of transaction costs. The paper tests the proposition that housing markets in Inner London exhibit a degree of path dependence, through the construction of a three-equation model, and examines the impact of variables constructed for the 19th and early 20th centuries on modern house prices. These include 19th-century social structures, slum clearance programmes and the 1908 underground network. Each is found to be significant. The tests require the construction of novel historical datasets, which are also described in the paper. [ABSTRACT FROM PUBLISHER]

This paper constructs a housing market model to analyse conditions for different generations of households in the UK. Previous policy work has suggested that baby-boomers have benefitted at the expense of younger generations. The model relies on a form of financial accelerator in which existing homeowners reinvest a proportion of the capital gains on moving home. The model is extended to look at homeownership probabilities. It also explains why an increasing share of mortgages has gone to existing owners, despite market liberalisation and securitisation. In addition, the model contributes to the explanation of volatility. [ABSTRACT FROM PUBLISHER]

This paper considers the impact of existing land use patterns on housing supply price elasticities in local areas of England, under existing planning policies. The paper demonstrates that, despite common national planning policies, local supply responses to market pressures vary considerably, because of differences in historical land uses. The study area covers the Thames Gateway and Thames Valley, which lie to the east and west of London respectively. However, whereas the latter is one of the wealthiest areas of England, the former includes some of the highest pockets of deprivation and was a government priority area for increasing housing supply. Due to differences in historical land use and geography, the price elasticity in the least constrained area is approximately six times higher than the most constrained. [ABSTRACT FROM PUBLISHER]

As a result of the recommendations of the Barker Review of Housing Supply in 2004, the Department of Communities and Local Government in England commissioned the construction of an econometric model of regional housing markets in order to examine the effects of different levels of housing construction on long-run affordability. The model has been regularly used as part of the policy-making process in England. The paper describes the structure of the model, which includes sectors covering house prices, household formation, tenure, migration flows, demographics and labour markets. Furthermore, through simulation analysis, the paper examines some of the key policy questions that have occurred in UK housing in recent years. [ABSTRACT FROM AUTHOR]

Abstract: This paper re-examines one of the key parameters in housing economics – the price elasticity of housing supply. In the international literature, there is little agreement on its value or even on the appropriate methodology for its measurement. The paper argues that different spatial scales capture different aspects of the problem and, therefore, there is merit from comparing results at international, national, local and firm level. Using standardised models, there is evidence that the responsiveness of housing supply to market conditions is lower in Britain than in the US or Australia. However, supply is more responsive to the change in house prices than their level. With exceptions, most past research on supply in Britain concentrates on the national or regional dimensions. The paper finds that there are also insights to be obtained from examining local and firm level data. Local estimation across the Thames Gateway shows the importance of planning constraints on supply elasticities, but historical patterns of land use and geography are also important. Firm level data indicate that supply elasticities are greater for large firms than for small firms. [ABSTRACT FROM AUTHOR]

This paper considers how local areas become stuck in poverty traps and develops models exhibiting thresholds, where deprivation has to fall to a certain level before taking off. Using aggregate data for local authorities, the paper models cross-section movements of house prices to identify the threshold level of poverty. The paper argues that the resource requirements for bringing the most deprived areas to the take-off point are likely to be high. But for areas that are already close to the threshold, regeneration can be successful. Therefore, identifying the thresholds is important. Testing for thresholds is not straightforward, but the paper provides empirical evidence. The implications for policies concerned with social mixing are not encouraging. However, mixing may be more successful in areas that lie close to the threshold. For example, few high-income households want to live in the most deprived areas if the expected capital gains are low. But capital gains are maximised close to the take-off points. [ABSTRACT FROM AUTHOR]

In the mid 1990s, Meen set out a series of propositions concerning the relationship between housing and the macro economy during the 1980s and early 1990s. This paper provides 10 further propositions for the early years of this century, taking into account recent research and policy concerns. The first five propositions concern housing market risk, whereas the remaining issues deal with the sustainability of homeownership. The empirical evidence presented finds that there is limited evidence for bubbles over the past 10 years and models of house prices are stable. Furthermore, housing possessions are unlikely to fall to the levels observed in the early 1980s. It is also suggested that the private rental market may not expand at the same rate as in the past 10 years, but there are risks to homeowners down the income distribution. Finally, the main beneficiaries of new affordability targets may be existing rather than new households. [ABSTRACT FROM AUTHOR]

Many governments have introduced policies aimed at improving social mix, particularly in urban areas. In this article we develop a model of moving and location decisions, which demonstrates how cumulative processes of growth, decline and segregation occur that conflict with the aims of policies aimed at improving social mix. A nested multinomial logit model is estimated, using a micro data set for London and South East England to illustrate the likely outcomes. [ABSTRACT FROM AUTHOR]

The Barker Review of Housing Supply was set up in order to address some of the weaknesses that might arise if the UK were to join EMU. The Final Report has quickly become one of the most important documents in housing policy for many years. Broadly, the Review examined the reasons for the weakness of English housing supply. For example, during the 1990s, despite the boom in house prices, private housing construction hardly grew at all. The weakness of supply is one reason why house prices in the UK have risen much faster than the European average. In response to the Review's conclusion that the land-use planning system is the main cause of supply shortages, England will be introducing affordability targets. Regional planning authorities will be required to release more land if they expect targets not to be met. Economic analysis and models will become central to the assessment. The Barker Review provides a good example of how economic analysis can be used to inform the policy debate. This paper looks at the economics underlying the Barker Review, concentrating on an analysis of supply elasticities and the required increases in construction to meet price targets. The latter has been particularly controversial since, under some assumptions, the analysis implies that housing construction in England needs to be approximately doubled in order to bring house price inflation down to European levels. [ABSTRACT FROM AUTHOR]

This paper considers how empirical models of urban housing markets might be constructed as a basis for policy analysis. It is suggested that this is fundamentally more difficult than national or regional models, because of particular characteristics of urban markets--notably, the importance of social interactions, non-linearity and segregation. However, recent advances in the modelling of social interactions point to a possible way forward. The paper begins by reviewing some aspects of this literature and shows how the models generate non-linearities consistent with recent work on thresholds in local housing markets. Simple cellular automata are also used to demonstrate this point and how segregation may arise. A review follows of work on discrete choice models, which include social interactions within their structure. Bringing all the tools together, it is suggested that there is now the potential to construct urban housing models, although a great deal of theoretical and empirical work remains to be done. [ABSTRACT FROM AUTHOR]

At first sight, data on real house prices in the U.S.A. and the U.K. appear to suggest that behavior has differed over time in the two countries at both the national and subnational levels. Furthermore, empirical estimates of the main house price elasticities in the literature appear to differ. In this paper, we ask whether the differences are really as great as previous work suggests. We argue that, by adopting a common methodological framework, the same theory can explain behavior in both countries. Also, there are important similarities in subnational house price trends that are not immediately evident from inspection of the data. [Copyright &y& Elsevier]

In Britain, house prices exhibit a distinct spatial pattern over time, rising first in a cyclical upswing in the south-east and, then, spreading out over the rest of the country. This is known as the ripple effect. Although previous studies have shown that, statistically, the ripple effect is a valid representation of the data, providing convincing economic explanations is less straightforward. Some studies have concentrated on the role of migration; others argue that the pattern reflects different regional growth rates. This paper suggests that structural differences in regional housing markets are important. A new model of house prices for the regions in Great Britain is devised and estimated in which the coefficients exhibit non-random spatial patterns. The coefficients reflect structural differences between the regions and it is shown, through simulations, that the model can generate a ripple effect irrespective of regional growth patterns. [ABSTRACT FROM AUTHOR]

According to recent official projections, 4.4 million new households will be formed in England between 1991 and 2016. These estimates are based on a detailed analysis of demographic trends, but take no account of the effect of potential changes in economic conditions, particularly on the owner-occupancy rate. In this paper, we propose a new approach to modelling sustainable owner-occupancy which places less emphasis on demographics, but considers in more detail the role of market mechanisms through changes in house prices and rates of new construction. [ABSTRACT FROM AUTHOR]

Explores the nature of spatial interactions in Great Britain regional house prices and housing starts using methods taken from the spatial econometrics literature and from cointegration. Extent to which markets are homogeneous, dependent and convergent across the English regions; Spatial dependence in terms of house prices and starts; Housing since the early 1970s.

During the last ten years, macroeconomists have increasingly come to realise that there are important interactions between housing and the wider economy. In some cases, this realisation has come too late to avoid the severe oscillations in the economy that have characterised the period since the mid-1980s. This paper uses a macroeconometric model, specifically designed to capture the interactions, in order to reflect on the experience of the 1980s and early 1990s and to draw theoretical, empirical and policy conclusions in terms of ten propositions. [ABSTRACT FROM AUTHOR]