Inside a bubble and crash: Evidence from the valuation of amenities

Housing markets and their cycles are central to understanding macroeconomic fl uctuations. As housing is an inherently spatial market, an understanding of the economics of location-specific amenities is needed. This paper examines this topic, using a rich dataset of 25 primary location-specific characteristics and over 1.2 million sales and rental listings in Ireland, from the peak of a real estate bubble in 2006 to 2012 when prices had fallen by more than half. It finds clear evidence that the price effects of amenities are greater than rent effects, something that may be explained by either tenant search thresholds or buyers' desire to "lock in" access to fixed-supply amenities. Buyer lock-in concerns would be most prevalent at the height of a bubble and thus would be associated with pro-cyclical amenity pricing. Instead there is signicant evidence that the relative price of amenities is counter-cyclical. This suggests the Irish housing market bubble was characterized by "property ladder" effects, rather than "lock-in" concerns.