Kocherlakota , Narayana

Note that I’m talking about land, not housing. Theoretically, it is hard to motivate the existence of significant overvaluation in housing structures (they’re readily replaceable). Empirically, there is considerably less evidence of overvaluation for structures than for land. Here, I refer to data from the Lincoln Institute of Land Policy that separates the price of housing into the price of structures and the price of land. The data were originally constructed by Davis and Heathcote (2005, 2007), and are derived from the Case-Shiller housing price index. These data indicate that the price of housing structures rose by less than 100% in nominal terms from 1996 to 2006, and has fallen by less than 10% since that date.