| Abstract: |
Differences in house price and income growth rates between 1950 and 2000
across metropolitan areas have led to an ever-widening gap in housing values
and incomes between the typical and highest-priced locations. We show that the
growing spatial skewness in house prices and incomes are related and can be
explained, at least in part, by inelastic supply of land in some attractive
locations combined with an increasing number of high-income households
nationally. Scarce land leads to a bidding-up of land prices and a sorting of
high-income families relatively more into those desirable, unique, low housing
construction markets, which we label “superstar cities.” Continued growth in
the number of high-income families in the U.S. provides support for
ever-larger differences in house prices across inelastically supplied
locations and income-based spatial sorting. Our empirical work confirms a
number of equilibrium relationships implied by the superstar cities framework
and shows that it occurs both at the metropolitan area level and at the
sub-MSA level, controlling for MSA characteristics. |