Microeconomic Perspectives on the Structure and Operation of Local Housing Markets

Abstract

This paper provides a highly selective review of the voluminous literature on the economic analysis of local housing markets. It is suggested that, although it often appears that mainstream economics is more concerned with improving technical elements of the modelling approach than enhancing our understanding of how markets function, there is in fact a rich literature that is largely concerned with explaining market processes and dynamics and with the impact of policy interventions on the workings of the market. The housing economics literature is more methodologically diverse than many housing analysts might expect and, in the UK and Europe in particular, this has helped stimulate several new developments in local market analysis. These advancements have been associated, in part, with improvements in statistical techniques and conceptual models. This has resulted in renewed interest in the treatment of neighbourhood segmentation and complex spatial processes in local market analysis. It is argued that further progress might be made by abducting insights from qualitative analysis in order to improve the specification of models and in their refinement and development.

Keywords:

• Local housing markets
• submarkets
• modelling approaches

Acknowledgements

The author would like to thank three anonymous referees, Chris Leishman, Susan Smith and participants at the Housing Studies Association 2006 Spring Conference for comments on this paper. The usual disclaimer applies.

Notes

¹ It is possible to trace the family tree through doctorate research supervision arrangements. Ely supervised Ernest Fisher at Wisconsin. Fisher went on to influence the work of his student William Grigsby and others including Rapkin and Winnick at Columbia (see Galster, 1996; Grigsby, 1963; Rapkin et al., 1953 for a flavour of this work). I am indebted to Lou Rosenburg for his help in uncovering these connections, some of which emerged in his correspondence with Grigsby on a draft paper (later Rosenburg & Watkins, 1999).

² Of course, it is only fair to note that these models have been continuously revised and refined. Nevertheless, the essence of the models remains substantially unchanged.

³ Explicit debates about methodological issues are almost non-existent in the housing economics literature. This paper by Grigsby is a rare exception. Until this point, perhaps as a result of the methodological dominance of institutional modes of analysis, the prevailing theoretical position was never set out explicitly. Now, with the neo-classical model pervasive, the Handbook on the Economics of Housing, published in 1997, does not include a single heterodox contribution to the literature or even acknowledge the existence of alternative methodological positions (Quigley, 1999).