The Price and Quantity of Residential Land in the United States

In this paper, we construct the first constant-quality aggregate price index for the stock of residential land in the United States. In the process, we uncover four main results: (a) since 1970, residential land prices have risen nearly twice as fast, but also have been twice as volatile as existing home prices; (b) the nominal stock of residential land accounts for approximately thirty percent of the market value of the housing stock and is approximately equal to forty percent of nominal GDP; (c) the real quality-adjusted stock of residential land has increased an average of one-half percent per year since 1970; and, (d) residential investment leads the price of residential land by about two quarters. This last result may be inconsistent with some popular models of residential investment that rely on demand shocks to spur changes in investment. We also show that the logarithms of the nominal constant-quality price index for land, disposable income, and interest rates are cointegrated, although the simple statistical models we estimate do not fully explain the magnitude of historical booms and busts in residential land prices.