An Econometric Examination on the Share of Land Value of Single-family Housing Prices in Helsinki

Abstract

This study brings empirical evidence on the importance of land value on housing prices in Helsinki Metropolitan Area (HMA). Utilizing econometric analysis and a quarterly dataset over 1988Q1-2008Q2, the results show that the value of land accounts for a significant fraction of single-family housing prices in HMA. In 2000-2007 the share of the land value component is estimated to be almost 50% of housing prices, on average. In line with prior expectations, the results also suggest that the land value component of housing has increased over time. The notable role and increase of the land value component has implications regarding housing price volatility. Since land prices appear to be more volatile than construction costs, it is anticipated that greater share of the land value component leads to more volatile housing prices. Given the significant role that housing wealth appears to play in the overall economy, this is of importance also for the economic policy makers.