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I
<br /> Iunits are supplied and demand decreases and and supply model.28 Gyourko, Mayer, and Sinai
<br /> prices fall. As prices fall, supply falls off and (2013) advanced the argument that the standard
<br /> demand increases. If demand and supply demand model may not hold for high-priced
<br /> t continually work in this fashion, the price of housing markets. In those markets, a sharp
<br /> housing will reach equilibrium. change in housing demand can speed up price
<br /> growth rates and change the composition of local
<br /> II1. Sales Prices populations.
<br /> This simple model of price behavior doesn't work Gyourko et al. found that these so-called
<br /> 1E the same way in every housing market. During "Superstar" cities had 60 percent higher house
<br /> the first half of the last decade, a number of prices than other cities. They also had average
<br /> researchers noticed that house prices in certain incomes that were 24 percent higher and 3.4
<br /> I regions had begun to exceed the cost of
<br /> percent more high-income households than
<br /> production by significant margins. Glaeser and other cities. Superstar home prices were
<br /> Gyourko (2008) summarized their work, disproportionately affected when household
<br /> L concluding that, with respect to house prices, income changed. When the national number of
<br /> there were three general types of housing rich families increased, the price of housing in
<br /> markets in the U.S.: (1) low-priced, low demand Superstar cities rose by 39 percent more than in
<br /> z5 other cities. Between 1970 and 2000, home
<br /> L markets25; (2) medium priced, high demand
<br /> zs prices in those cities rose by 75 percent, so
<br /> markets with high supply elasticity and (3) national income increase accounted for more
<br /> high-priced markets with high demand and low
<br /> I supply elasticity.27 Hawaii's markets are of type than 80 percent of the excess growth in
<br /> 3 which we will refer to as "high-priced markets". Superstar cities during that time (p.185).
<br /> Thkey have very high prices, highly volatile High house prices perpetuate price increases
<br /> market activity, and a supply side that does not even without an increase in location value or a
<br /> respond quickly to increases in demand. They change in the elasticity of supply. They lead to
<br /> also have high productivity ratings measured by higher rents and greater population growth as
<br /> higher wages and higher household incomes, higher-income households crowd out L higher amenities, and greater external demand. g
<br /> lower-
<br /> income households. They will alter income
<br /> distribution, as higher-income buyers crowd out
<br /> In high-priced markets, demand and supply do
<br /> L not contribute equally to the house prices. Theo middle-income homeowners. Finally, it causes a
<br /> Eicher (2008) looked at both factors in change in the price-to-rent ratio. Lower income
<br /> Washington State and concluded that, between households will be crowded out, higher income
<br /> I1989 and 2006, demand factors (population households will expect higher appreciation and
<br /> growth and income) increased the cost of a will be more willing to accept higher home prices.
<br /> house in Washington by $50,000. Supply factors Thus, high prices create increased demand.
<br /> I (land use regulation, permitting delays, and Some newer research suggests that other
<br /> statewide growth management) increased the correlates of high-priced housing are worthy of
<br /> cost of a house by $200,000. more intense research, including tourism,
<br /> r Recently, housing economists found that the income inequality, and liberal politics.
<br /> behavior of high-priced housing markets has
<br /> departed even further from the simple demand
<br /> 111 25 For example, Buffalo, Rochester, Erie, Cleveland, Gary,
<br /> Akron, and Detroit. 28 Gyourko et al. were working with the standard cross-
<br /> I26 Examples are Houston and Dallas, Oklahoma City, sectional housingdemand model, which
<br /> P y posits that
<br /> Ames Iowa, Topeka Kansas,and Lincoln Nebraska. changes in price are caused by differences in the
<br /> 2' Such as Honolulu, San Francisco, Los Angeles, economic value of living in one market or another,which
<br /> Portland, Seattle, Chicago, Boston, New York, are in turn driven by differences in wages, amenities,
<br /> 111 Washington, D.0 , and Miami. and fiscal policies.
<br /> L Hawai'i Housing Planning Study,2016 Page 25
<br /> ©SMS, Inc December,2016
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