J Real Estate Finan Econ

https://doi.org/10.1007/s11146-019-09696-x

Urban Land: Price Indices, Performance,

and Leading Indicators

Mark Fitzgerald 1 & David J. Hansen 2 & Will McIntosh 1 & Barrett A. Slade 3

# Springer Science+Business Media, LLC, part of Springer Nature 2019

Abstract
This study had two objectives: first, to evaluate the historical performance of urban land
prices across 20 prominent U.S. metro markets; and second, to determine if urban land
prices are a leading indicator for prices in the built environment. Using a time-varying
econometric model with spatial controls, we constructed constant-quality metropolitan-
level land price indices. We found that 1) from 2000 to 2017 (18 years) national
residential and commercial-industrial urban land prices appreciated by 2.08% and
1.87% annually, respectively; 2) urban land prices exhibited greater volatility compared
with improved property prices; 3) in many metro markets land prices began to decline
before improved property prices leading up to the Great Recession; and 4) land prices
were slower to recover after the Great Recession compared with prices in the built
environment. Using Granger Causality tests on the national urban land market, we
found evidence that from the peak of the market in 2007 through 2017, land prices were
a leading indicator of prices in the built environment.

Keywords Land prices . Hedonic price analysis . Time-varying constant-quality indices .

Residential and commercial properties . Leading indicator

JEL Classification R33

* Barrett A. Slade
bslade@byu.edu

Mark Fitzgerald
mark.fitzgerald@usrealco.com

David J. Hansen
DHansen@Pripd.com

Will McIntosh
will.mcintosh@usrealco.com

1
USAA Real Estate, San Antonio, TX, USA
2
Property Reserve, Inc., Salt Lake City, UT, USA
3
BYU Marriott School of Business, Provo, UT, USA
 M. Fitzgerald et al.

Introduction

Land, a scarce resource, is a primary factor of production and is a fundamental building

block of a local economy. The price of vacant land is an important indicator of an area’s
attractiveness in an urban market; therefore, understanding the determinants and the
intertemporal change in land prices, as well as the relation of land prices to prices in the
built environment, is important to understanding a local economy.1 This study had two
objectives: first, to evaluate the historical performance of land prices across 20 prom-
inent U.S. metro markets; and second, to determine if urban land prices are a leading
indicator for prices in the built environment.
Using CoStar land transactions data and a time-varying econometric model with
spatial controls, we constructed constant-quality metro-level land price indices across
20 prominent U.S. metro markets.2 We found that from 2000 to 2017 (18 years)
national residential urban land prices appreciated by 2.08% annually and national
commercial-industrial urban land prices appreciated by 1.87% annually.3
We also compared the new land price indices with prominent improved property
indices including the S&P CoreLogic Case-Shiller Housing Price Indices4 for residen-
tial properties and the NCREIF Property Indices5 for commercial-industrial properties.
The analysis found that on a national basis residential land prices exhibited greater
volatility compared with home prices and that residential land prices peaked before
home prices leading up to the Great Recession. The analysis also found that residential
land prices have been slower to recover compared with home prices. These same
relationships were found when comparing national commercial-industrial urban land
prices to prices in the built environment.
Next, we used simple linear regression, Granger Causality tests, and
cointegration tests to investigate the relationship between land price indices
and improved property price indices and to determine if land prices were a
leading economic indicator of prices in the built environment. When investigat-
ing the national land market, the simple linear regression analysis and
cointegration tests did not provide conclusive evidence that land prices were a
leading indicator of improved property prices; however, the Granger Causality

1
See Haughwout, Orr, and Bedoll, Federal Reserve Bank of New York, 2008
2
These are the same 20 metro markets used by the S&P CoreLogic Case-Shiller Housing Indices and include
Atlanta, Boston, Charlotte, Chicago, Cleveland, Dallas, Denver, Detroit, Las Vegas, Los Angeles, Miami,
Minneapolis, New York, Phoenix, Portland, San Diego, San Francisco, Seattle, Tampa, and Washington, D.C.
3
CoStar researches the likely use for each parcel of land included in a transaction which allowed us to
categorize all land transactions in two broad categories—Residential or Commercial-Industrial. BResidential^
use includes land proposed for low or multifamily housing. BCommercial-Industrial^ use includes all land
proposed for commercial or industrial uses including office, retail, manufacturing, and distribution.
4
According to the S&P website www.us.spindices.com, BThe S&P CoreLogic Case-Shiller Home Price
Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of
residential real estate both nationally as well as in 20 metropolitan regions.^ The monthly indices use a
repeat-sales construction methodology. This technique attempts to identify intertemporal change in housing
prices assuming a constant-quality.
5
As defined on the NCREIF website: www.ncreif.com, BThe NCREIF Property Index (NPI) is a quarterly,
unleveraged composite total return for private commercial real estate properties held for investment purposes
only. All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt institutional
investors and held in a fiduciary environment.^ The NCREIF appraisal-based appreciation index reports the
intertemporal changes in values of the properties included in the index.
Urban Land: Price Indices, Performance, and Leading Indicators

tests provide compelling evidence that from the peak of the market in 2007
through 2017, land prices were a leading indicator of prices in the built envi-
ronment. This finding suggests that during a strong downturn in the market land
prices provide an early signal of future price changes in the built environment.
This paper is organized as follows: the BData^ section summarizes the
primary data used in the study, while the BModel^ section develops the econo-
metric model used to construct the time-varying constant-quality land price
indices. The BEmpirical Results^ section presents the primary findings of the
study, while the BConclusion^ section summarizes the principal findings of the
study.

Data

We used data provided by CoStar Group, Inc.,6 to construct the national and
metropolitan level time-varying transaction-based constant-quality land price
indices. The data includes 149,989 land transactions that occurred from 2000
through 2017 in 20 U.S. metropolitan markets as identified in the S&P
CoreLogic Case-Shiller Composite 20 Housing Price Index.7 Table 1 Panel A
provides descriptive statistics of all the land transactions including: sales price,
number of acres, sales price per acre, and sales price per square foot. Also,
spatial or distance variables were constructed to control for the location effects of
each parcel, including distance to the nearest Central Business District (CBD),
highest household income zip code, nearest major airport, nearest Walmart store,
nearest freeway interchange, nearest hospital, nearest prison facility, and the
nearest major university.8
The mean sales price for the 20 markets was $2,318,204 (median of
$957,000) with a minimum of $10,000 and a maximum of $639,000,000. The
average parcel size was 20.11 acres (median of 2.92) and ranged from 0.01 to
33,810 acres, while the average price per square foot was $40.68 (median of

6
CoStar Group, Inc., investigates and compiles commercial property and land transactions in most major
metropolitan markets in the United States; however, they do not attempt to compile transactions of single-
family resident lots or homes. Summaries of the transactions are provided to interested parties, such as
appraisers, brokers, and developers, on a subscription basis. Given that some jurisdictions restrict public access
to important transaction details, it is doubtful that CoStar captures the entire population of real estate
transactions in each of the 20 metro markets; however, given their company objectives and their extensive
efforts to obtain all transactions that are available, there is every reason to believe that they capture the large
majority of transactions in the markets under investigation. We thank CoStar Group, Inc., for their generous
assistance with the data.
7
After obtaining the land transaction data from CoStar Group, Inc., initial filters were employed to screen the
data for possible input errors and to prepare the data for analysis. These filters included a sales price minimum,
a land area minimum and maximum, the availability of the latitude and longitude, the identification of the
geographic area, the maximum distance from the CBD, and whether the land parcel is located in one of the 20
major markets. After the initial filtering, the data were further screened by trimming the top and bottom 1% of
all transactions in each of the 20 major markets as indicated by the price per square foot of land area. This
resulted in 149,989 transactions.
8
We used aerial photography to identify the location, latitude and longitude, of all central business districts for
each market. Other location data, latitude and longitude, were obtained from zip-codes.com, the National
Transportation Authority, AggData, Wal-Mart Corporation, U.S. Census, and data-lists.com.
 M. Fitzgerald et al.

Table 1 Descriptive statistics. Land transactions from 20 U.S. Metropolitan Markets, 2000–2017 (149,989
total observations)

Variable name Average Std. Dev. Median Minimum Maximum

Panel A – combined data

Sales price $2,318,204 $6,662,592 $957,000 $10,000 $639,000,000
Number of acres 20.11 153.65 2.92 0.01 33,810
Price per acre $1,772,202 $9,209,672 $311,885 $419 $522,394,517
Price per square foot $40.68 $211.00 $7.16 $0.01 $11,992
Miles to the CBD 20.49 14.02 18.09 0.03 102.44
Miles to the high inc. zip 22.68 13.97 20.30 0.05 127.11
Miles to major airport 17.93 11.61 15.61 0.32 76.21
Miles to Walmart 3.56 2.92 2.86 0.00 49.72
Miles to freeway 2.56 2.92 1.52 0.00 32.09
Miles to hospital 3.70 3.45 2.82 0.00 57.62
Miles to prison 11.55 7.64 10.44 0.02 49.17
Miles to major university 13.73 9.72 11.33 0.02 69.00
Panel B - residential land
Sales price $2,542,138 $7,171,886 $1,058,000 $10,000 $639,000,000
Number of acres 34.51 217.17 5.36 0.01 33,810
Price per acre $1,391,338 $6,915,548 $200,416 $594 $364,285,714
Price per square foot $31.94 $158.76 $4.60 $0.01 $8362.85
Miles to the CBD 21.19 13.55 19.29 0.11 96.80
Miles to the high inc. zip 22.61 13.72 20.58 0.05 114.71
Miles to major airport 19.25 11.92 17.07 0.67 76.21
Miles to Walmart 4.07 3.27 3.28 0.05 49.72
Miles to freeway 3.07 3.16 1.99 0.01 31.18
Miles to hospital 4.51 4.21 3.51 0.01 57.62
Miles to prison 12.33 7.87 11.20 0.03 46.63
Miles to major university 14.90 9.89 12.87 0.03 69.00
Panel C - Commercial-industrial land
Sales price $2,164,833 $6,285,474 $890,000 $10,000 $540,000,000
Number of acres 10.25 85.07 2.02 0.00 20,000
Price per acre $2,033,053 $10,487,509 $401,835 $418 $522,394,516
Price per square foot $46.67 $240.76 $9.22 $0.01 $11,992.53
Miles to the CBD 20.01 14.31 17.30 0.03 102.44
Miles to the high inc. zip 22.72 14.14 20.08 0.06 127.11
Miles to major airport 17.02 11.29 14.70 0.32 69.78
Miles to Walmart 3.20 2.59 2.60 0.00 40.72
Miles to freeway 2.21 2.70 1.24 0.00 32.09
Miles to hospital 3.14 2.68 2.47 0.00 51.06
Miles to prison 11.02 7.44 9.88 0.02 49.17
Miles to major university 12.92 9.53 10.28 0.02 63.43

The 20 U.S. metro markets include Atlanta, Boston, Charlotte, Chicago, Cleveland, Dallas, Denver, Detroit,
Las Vegas, Los Angeles, Miami, Minneapolis, New York, Phoenix, Portland, San Diego, San Francisco,
Seattle, Tampa and Washington, D.C.
Urban Land: Price Indices, Performance, and Leading Indicators

$7.16) and ranged from $0.01 to $11,992. These large ranges imply that signif-
icant heterogeneity exists among the 20 metropolitan land markets located
throughout the U.S. Also, with the high mean and median sales price per square
foot, it is clear that these data do not represent rural farmland.
Table 1 Panels B and C provide the descriptive statistics for residential and
commercial-industrial land use respectively and show that the mean price sales price
and number of acres for residential land ($2,542,138 and 34.51) is larger than
commercial-industrial land ($2,164,833 and 10.25), but the price per square foot is
higher for commercial-industrial land ($46.67) compared with residential land
($31.94).
In the index construction model, the distance variables provide important
spatial controls. Panel A shows average distances to each of the following
prominent locations: CBD—20.49 miles, highest household income zip code—
22.68 miles, nearest major airport—17.93 miles, nearest Walmart store—
3.56 miles, nearest freeway interchange—2.56 miles, nearest hospital—
3.70 miles, nearest prison—11.55 miles, and nearest major university—

Table 2 Land use by metro market. Land transactions from 20 U.S. Metropolitan markets, 2000–2017
(149,989 total observations)

Metro Residential Residential Commercial & Commercial & Total Percent

Markets land use land use % industrial land industrial land frequency of total
frequency use frequency use %

Atlanta 7304 44.39 9150 55.61 16,454 10.97

Boston 1297 34.93 2416 65.07 3713 2.48
Charlotte 989 32.64 2041 67.36 3030 2.02
Chicago 5036 36.14 8897 63.86 13,933 9.29
Cleveland 443 23.33 1456 76.67 1899 1.27
Dallas 510 12.43 3592 87.57 4102 2.73
Denver 3013 41.77 4201 58.23 7214 4.81
Detroit 1326 30.38 3039 69.62 4365 2.91
Las Vegas 5274 52.24 4822 47.76 10,096 6.73
Los Angeles 2970 34.64 5603 65.36 8.573 5.72
Miami 3544 31.35 7760 68.65 11,304 7.54
Minneapolis 428 21.71 1543 78.29 1971 1.31
New York 4125 33.39 8228 66.61 12,353 8.24
Phoenix 9120 53.57 7904 46.43 17,024 11.35
Portland 2602 53.48 2298 46.52 4940 3.29
San Diego 1241 37.07 2107 62.93 3348 2.23
San Francisco 729 29.41 1750 70.59 2479 1.65
Seattle 3971 53.78 4620 46.22 8591 5.73
Tampa 2071 31.23 4561 68.77 6632 4.42
Washington DC 4287 53.80 3681 46.20 7968 5.31
Total 60,969 40.65% 89,020 59.35% 149,989 100%
 M. Fitzgerald et al.

13.73 miles. Panels B and C show that the distance variables do not vary
considerably between land uses.
Table 2 shows the transaction frequency and land use percentage by metro
market. Residential land comprised 40.65% of the sample, while commercial-
industrial land comprised 59.35%. The Phoenix market experienced the highest
number of transactions (17,024, or 11.35%), followed by Atlanta (16,454, or
10.97%) and Chicago (13,933, or 9.29%). Cleveland experienced the fewest
transactions (1899, or 1.27%) followed by Minneapolis (1971, or 1.31%) and
San Francisco (2479, or 1.65%).
Figure 1 provides descriptive statistics by year for the 20 metro markets.
Panel A shows that after an initial drop in transaction volume in 2001,
probably resulting from the dot-com crash, transaction frequency increased
monotonically from 2001 to 2004, followed by a steep monotonic decline
through 2009. After reaching a trough in 2009, transaction volume experienced

a
14,000
12,517 12,783
12,000 11,535
11,038 10,799 10,647
9,910
Number of Transactions

10,000
8,576
8,075 7,963
8,000 7,491 7,600 7,393

6,098
6,000 5,297
4,608
4,030
4,000 3,629

2,000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Year

b
387,052

450,000
356,199

400,000

350,000
270,724
247,226
241,977

300,000
184,986

250,000
Acres

166,842

150,018

200,000
129,936

127,327
109,083
108,158

98,654

97,102

150,000
90,682

84,228
84,116

81,911

100,000

50,000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Year

Fig. 1 Descriptive statistics by year (2000–2017) 20 metropolitan markets. a transaction frequency by year, b
total number of acres sold per year, c average number of acres sold per transaction by year, d average distance
to CBD by year
Urban Land: Price Indices, Performance, and Leading Indicators

Fig. 1 (continued)

a monotonic increase for seven consecutive years through 2016; however, in

2017 transaction volume tapered off.9
Panel B shows the total number of acres transacted in each year. Total acres
purchased increased monotonically from 2000 to 2005, then declined monotonically
through 2008. Since 2008 the total acres transacted experienced essentially a roller
coaster ride with relatively low volume. In fact, 2017 experienced the lowest number of
acres purchased over the 18 years at 81,911.
Panel C shows the average number of acres purchased per transaction by year. Since
2009 there has been a general decline in the number of acres purchased per transaction.

9
Some of the decline in volume for 2017 may be because transaction data in 2017 had not been fully collected
and verified as of the date of this analysis.
 M. Fitzgerald et al.

In fact, over the last three years, the average number of acres per transaction has been
approximately 11 acres, almost one-half the average number of acres purchased per
transaction over the entire 18-year period (2000–2017).
Although these figures provide no formal test of causality or that land prices are a
leading indicator of prices in the built environment, it is interesting to observe that
transaction frequency and the number of acres sold per year began to decline two to
three years before the beginning of the Great Recession.
Panel D shows that in the early years of the study, the average distance to the CBD
increased, suggesting that land development was taking place on the periphery and
farther away from the central city. In 2009 the average distance peaked at 22.42 miles;
however, after 2009 there was a shift in the other direction with distance to the CBD
gradually declining. There are two possible explanations for this finding: first, that land
transactions on the periphery outpaced development during the boom years, leaving
much-undeveloped land between the central core and the periphery; or second, that
there was a structural shift in preferences toward land and properties located closer to
the central city. In either case, the data suggests that demand for larger tracts of land in
the suburbs has given way to smaller tracts closer to the central city.

Models

First, we present the econometric model used to construct the time-varying constant-
quality land price indices. Second, we present the models and methods used to
determine if land prices are a leading indicator of prices in the built environment.

Land Price Index Construction

Construction of real estate price indices typically employs one of five methodologies:
naïve, appraisal-based, repeat-sales, residual, or hedonic (multivariate regression).
Naïve price indices use measures of central tendencies, such as the mean or median
sales price of properties over time. Because mean or median prices do not control for
quality differences among the properties, intertemporal price changes may result from
quality differences among the sample of transacting properties, rather than a pure price
change, making the index results from this technique less reliable than other index
construction methods. Appraisal-based indices, such as the National Council of Real
Estate Investment Fiduciaries (NCREIF) Property Indices (NPI) are typically limited to
large institutional-grade properties where separate appraisals may be financially justi-
fied; however, this method is not financially feasible for constructing land price indices.
Also, appraisal-based indices suffer from appraisal smoothing,10 a common criticism of
this technique.
Land residual indices are constructed by essentially backing out the depreciated
value of the building improvements from the total transaction price, leaving the amount
attributed to the land as residual. This technique has primarily been applied to homes,
thereby providing residential land indices.11 The theoretical basis for this index

10
Geltner (1993, 1998), Diaz and Wolverton (1998), Lai and Wang (1998), and Gatzlaff and Geltner (1998).
11
See Davis and Heathcote (2007), Davis and Palumbo (2008), and Davis (2009).
Urban Land: Price Indices, Performance, and Leading Indicators

construction methodology is sound; however, the practical implementation of estimat-

ing the depreciated value of the building improvements is not trivial and is subject to
estimation error.
Repeat-sales transaction-based indices12 overcome deficiencies in the naïve, apprais-
al-based, and land residual approaches by identifying a sale and resale of the same
property with the difference in price providing an estimate of the pure price change for
the period between the transactions.13 The S&P CoreLogic Case-Shiller Housing
Indices utilize this methodology; however, for constructing land price indices, this
technique is not effective because land parcels rarely resale with the Bsame^ charac-
teristics. For instance, between the original sale and the resale, land characteristics of
parcels frequently change in some way (e.g., they may be platted, subdivided, assem-
bled, entitled, etc.); therefore, the lack of Bidentical property^ repeat transactions
renders this method impracticable for constructing land price indices.
Hedonic price analysis or multivariate regression techniques based on actual trans-
actions of vacant land then provide the best alternative for constructing land price
indices.14 This technique utilizes regression coefficients to identify the marginal values
or implicit prices of the individual determinants or quality characteristics. The model, in
the context of land price index construction, is typically specified as follows:

lnPij ¼ βX ij þ δT ij þ εij ð1Þ

where Pij is the transaction price per square foot for the individual land parcel (i) in time (j);
Xij is a vector of explanatory variables, including physical and spatial characteristics; Tij is a
vector of binary time variables; β and δ are vectors of parameters to be estimated; and εij is a
vector of stochastic disturbance terms. The index is constructed by taking the antilogarithm
of the parameters on the binary time variables and normalizing these to unity.
Equation 1 requires that the implicit prices (β) remain constant intertemporally;
however, macroeconomic factors and changes in preferences may cause these param-
eters to vary over the index period. If there are changes in the implicit prices of the
control variables, then the resulting index is biased.15 A chained approach to hedonic
index construction allows the implicit prices to vary intertemporally while at the same
time capturing the pure price change in the asset (urban land in this case).16 This is

12
Sometime known as the matched-pairs method in other industries (see Triplett 2006).
13
See Bailey et al. (1963), Case and Shiller (1989), Clapp et al. (1991), and Wong et al. (2018).
14
This methodology was established by Court (1939) and further advanced by Griliches and Adelman (1961),
Griliches (1971), and Rosen (1974). There is a large body of literature relating to hedonic price analysis and
the accompanying benefits and challenges as it relates to improved properties (see, for example, Case and
Shiller (1989), Fisher et al. (1994), Gatzlaff and Ling (1994), Knight et al. (1995), Munneke and Slade (2000,
2001), and Fisher et al. (2003), Sirmans and Slade (2012), Nichols et al. (2013), and Slade (2014)). See
Albouy et al. (2018) for a recent application of hedonic price analysis to estimate a cross-sectional index of
transaction-based land values in U.S. metropolitan markets.
15
See Griliches and Adelman (1961), Griliches (1971), Berndt et al. (1995), Fisher et al. (1994), and
Knight et al. (1995).
16
Divisia (1925) pioneered the concept of a chained index construction technique, while Griliches and
Adelman (1961) and Griliches (1971) explored this concept within the context of hedonic price analysis.
Others have investigated time-varying parameter techniques to study intertemporal price changes for personal
computers (see Berndt et al. 1995), housing (see Hill and Scholz 2017; Knight et al. 1995), and commercial
properties (see Munneke and Slade 2001); however, this study is the first to construct land price indices using
time-varying parameter methods.
 M. Fitzgerald et al.

accomplished by dividing the full sample of transacting properties into subsam-

ples with the first subsample consisting of transactions that occurred in periods
1 and 2. The second subsample contains transactions that occurred in periods 2
and 3, and so on. In this case, we use semiannual periods so each pool
contains one year of transaction data. The price model, shown in Eq. 1, is
estimated with T consisting of one dichotomous time variable taking a value of
1 if the transaction occurred in the second semiannual period. The coefficient
on the time variable (δ) represents the intra-interval pure price change. The
price change for any particular period relative to the first period is found by
adding the intra-interval changes over the desired interval as follows:
t−1
λo;t ¼ ∑ δi ð2Þ
i¼0

where t is the period and δ0 = 0. The price index value for period t from the
base period is then calculated as eλ0;t .
In the hedonic regression model, we employed specifications that include a
variety of control variables. The purpose of these variables is to act as a control
for other factors that influence the value of a land parcel, such as the land size.
The choice of independent variables (Xi) is limited to variables available from
the data provided and follows the urban economics literature.17 The physical
variable includes the natural log of parcel size (in square feet), while the spatial
location variables include the straight-line distance (in miles) to the CBD,
highest household income zip code, nearest major airport, nearest freeway
interchange, nearest Walmart store, nearest prison facility, nearest hospital,
and nearest major university.
The dependent variable is specified as the natural logarithm of the price per
square foot, a common form in hedonic pricing literature.18 One of the advan-
tages of this form is that it gives less weight to extreme values. Another
advantage of this form is that it is consistent with the distribution of the sales
price per square foot in the sample; in other words, the sales price per square
foot is truncated at zero on the left side of the distribution but skewed on the
right side, similar to a lognormal distribution.
The parcel size is specified in the logarithmic form, thus allowing the
coefficient to be interpreted as an elasticity: an x% change in parcel size leads
to a y% change in price per square foot. This specification allows the price per
square foot to increase or decrease with parcel size at either an increasing or
decreasing rate. Typically the price per square foot decreases with parcel size,
but at a decreasing rate, however, this relation does not always hold.19 In some
cases, a commercial site may be too small to accommodate a use that would be
perceived to be the highest and best use, suggesting that assemblage with an
adjacent parcel may be optimal. The logarithmic form is also used for eight of

17
See, for example, Colwell and Sirmans (1978, 1980), Colwell and Munneke (1999), Thornes and McMillen
(1997), and Colwell and Munneke (2003).
18
See Linneman (1980), Weirick and Ingram (1990), and de Leeuw (1993).
19
See Thornes and McMillen (1997) and Munneke et al. (2018).
Urban Land: Price Indices, Performance, and Leading Indicators

the distance variables (miles to CBD, highest household income zip code,
nearest freeway interchange nearest Walmart store, nearest prison, the nearest
hospital, and the nearest major university) to account for the nonlinear price
gradients. Land prices are expected to decline at a decreasing rate the greater
the distance from the CBD.20 This same relation is expected to hold for
distance to the highest household income zip code, nearest freeway interchange,
nearest Walmart store, nearest hospital, and nearest major university.
Prices are expected to increase at a decreasing rate the greater the distance
to a prison. We also expect a non-linear relation between land prices and
distance to the nearest major airport. In this case, we expect land prices
directly next to the airport to be higher because some businesses (e.g., ship-
ping enterprises) desire to be within proximity to an airport. For all other firms
and households, however, the noise externality leads to a decrease in land
prices near airports. However, as the distance to the airport increases the
negative externality becomes less impactful; therefore, we expect land prices
to begin to rise to account for being conveniently located nearby. Given this
expectation, we added a squared variable: Distance to Airport and Distance to
Airport Squared.

Leading Indicator Tests

The second objective of this study was to determine if land prices are a leading
indicator of prices in the built environment. One method for examining this question
would be by comparing the land price indices, constructed herein, to prominent,
improved property price indices such as the S&P CoreLogic Case-Shiller Housing
Price indices and the NCREIF Commercial Property Indices. If the land price and the
improved property price indices are normalized to unity, then a visual comparison may
provide some indication that land prices either do or do not lead improved property
prices intertemporally.
Approaches that are more formal include employing Granger Causality and
cointegration tests. Granger (1969) posits that a variable P Granger-causes Q if
the prediction of Q is improved by including past values of P. If P Granger-
causes Q, a unidirectional relationship exists; however, if P Granger-causes Q
and Q Granger-causes P, a bidirectional or joint causality exists between the
two variables.
Cointegration (or co-movement) occurs when two or more time series have a
common stochastic trend, and the two time series drift together at roughly the
same rate (Granger and Weiss 1983). Put another way; cointegration occurs
when the price indices tend to move together in the long run, even when
experiencing short-run deviations. If two price indices are cointegrated, an error
correction model can be used to predict the movement of one index based on
the movement of the other. Granger (1986, 1988), and Engle and Granger
(1987) posit that cointegration in two time series requires a causal relation in
at least one direction.

20
See Colwell and Sirmans (1978, 1980) and Colwell and Munneke (1997).
 M. Fitzgerald et al.

Empirical Results

Land Price Indices

After generating the chained regressions,21 we were able to construct time-varying

constant-quality land price indices for residential and commercial-industrial land
uses.22 Table 3 Panels A and B provide descriptive statistics and performance measures
by metro market for the residential and commercial-industrial land price indices
respectively. Panel A—Residential Land Price Indices shows that for the nation as a
whole, as represented by the Composite 20 index, residential land prices increased
about 45% from 2000 through 2017 (18 years) providing an average annual return of
2.08%. New York experienced the greatest annual average return, 8.0%, followed by
Las Vegas, 7.44%, and Washington, D.C., 7.15%. Atlanta, Detroit, and Miami were the
only metro markets that experienced overall declines of 0.45%, 0.44%, and 0.15%,
respectively. Las Vegas experienced the largest swings during the study period with a
standard deviation of 1.76 and a minimum of 1.0 and a maximum of 7.44. Overall, Las
Vegas residential land appreciated by 272%, providing a 7.44% annual rate of return.
Panel B—Commercial-Industrial Land Price Indices shows that for the nation as a
whole, as represented by the Composite 20 index, commercial-industrial land prices
increased about 40% from 2000 through 2017 (18 years) and provided an average
annual return of 1.87%. San Diego experienced the greatest average annual return
(5.87%), followed by Los Angeles (4.24%) and Boston (4.23%). Atlanta and Tampa
were the only two metro markets that experienced overall declines of 0.56% and
0.25%, respectively. Similar to the residential land market, Las Vegas experienced
the largest swings during the study period with a standard deviation index value of 0.79
and a minimum of 0.57 and a maximum of 3.64. Overall, Las Vegas commercial-
industrial land appreciated by 74.2% providing an average annual return of 3.11%.

Leading Indicator Analysis

Next, we compared the residential land price indices with the S&P CoreLogic Case-
Shiller Housing Price indices and the commercial-industrial land price indices with the
NCREIF Property Indices. Figure 2 provides the comparison charts for the residential
land indices.
All of the charts show greater volatility in the residential land price indices
compared with the home price indices, and some show clear evidence that land
prices peaked before home prices before the Great Recession, e.g., Composite
20, Atlanta, Chicago, Miami, Portland, and Seattle. The declines and subsequent
troughs were greater for the land price indices compared with the housing price

21
Appendix Table 8 provides the regression output for a sample period. An adjusted R-square of 0.74
indicates a good fit of the model.
22
The indices begin in 2000. CoStar Group, Inc., did not collect land transactions data in the early periods of
the study for Charlotte, Cleveland, and Minneapolis; therefore, we were unable to construct separate land price
indices for these three markets. Also, the paucity of residential land transactions in Dallas, San Francisco, and
Tampa prohibited construction of residential land price indices. In addition, the paucity of commercial-
industrial land transactions in Detroit prohibited construction of a commercial-industrial land price index in
this metro market.
Urban Land: Price Indices, Performance, and Leading Indicators

Table 3 Index descriptive statistics and performance measures by metro market

Metro Index values (2000–2017) Average annual returns

market
2000 2017 Min. Max. Mean Std. % Chg. 18 yrs. 10 yrs. 5 yrs.
Index Index Dev. (2000– 2000– 2008– 2013–
value value 2017) 2017 2017 2017

Panel A—residential land indices

Composite 20 1.00 1.45 1.00 3.16 1.67 0.60 45.0 2.08% −6.1% 4.73%
Atlanta 1.00 0.92 0.35 2.34 1.27 0.54 −7.8 −0.45% −9.1% 13.37%
Boston 1.00 1.73 0.62 6.06 1.87 1.09 73.8 3.10% −12.% −2.24%
Chicago 1.00 1.09 0.95 3.06 1.62 0.65 9.0 0.48% −10.% −0.54%
Denver 1.00 1.65 0.68 2.77 1.74 0.53 6.5 2.81% −4.3% −0.80%
Detroit 1.00 0.92 0.61 4.11 1.35 0.65 −7.6 −0.44% −4.1% −2.61%
Las Vegas 1.00 3.72 1.00 7.44 2.79 1.76 272.3 7.44% −6.8% 25.92%
Los Angeles 1.00 1.57 0.64 2.45 1.36 0.46 57.3 2.54% −2.2% 12.87%
Miami 1.00 0.97 0.51 4.14 1.52 1.03 −2.6 −0.15% −10.% 4.00%
NYC 1.00 4.10 0.99 6.87 3.00 1.40 310.2 8.00% −5.0% 0.41%
Phoenix 1.00 2.86 1.00 5.89 2.88 1.38 186.9 5.94% −6.5% 0.41%
Portland 1.00 1.05 0.85 3.83 1.67 0.79 5.6 0.31% −8.2% 4.33%
San Diego 1.00 2.07 0.75 5.74 2.36 1.34 107.8 4.11% −6.4% 13.48%
Seattle 1.00 1.66 0.92 2.89 1.72 0.48 66.9 2.87% −2.7% 0.40%
Washington 1.00 3.54 1.00 7.41 3.43 1.69 254.4 7.15% −1.3% 0.26%
DC
Panel B—commercial-industrial land indices
Composite 20 1.00 1.39 0.86 2.26 1.34 0.38 39.7 1.87% −3.0% 4.18%
Atlanta 1.00 0.90 0.46 1.68 0.99 0.33 −9.6 −0.56% −4.8% 10.77%
Boston 1.00 2.12 0.77 2.35 1.43 0.41 112.1 4.23% 1.86% 2.01%
Chicago 1.00 1.47 1.00 3.14 1.71 0.59 47.4 2.17% −5.6% 3.59%
Dallas 1.00 1.18 0.72 1.45 1.10 0.19 18.5 0.95% −1.1% 5.26%
Denver 1.00 1.77 0.88 1.82 1.26 0.23 77.0 3.20% 2.91% 10.45%
Las Vegas 1.00 1.74 0.57 3.63 1.46 0.79 74.2 3.11% −7.2% 16.20%
Los Angeles 1.00 2.12 0.96 2.59 1.60 0.48 112.8 4.24% −1.0% 12.97%
Miami 1.00 1.91 1.00 3.06 1.59 0.59 91.3 3.64% −4.6% 6.27%
NYC 1.00 2.07 0.79 2.23 1.54 0.45 107.8 4.11% −0.7% 5.69%
Phoenix 1.00 1.42 0.90 2.66 1.47 0.54 42.0 1.96% −6.2% 7.73%
Portland 1.00 2.12 0.92 2.26 1.57 0.37 112.4 4.22% 1.72% 3.22%
San Diego 1.00 2.83 0.93 2.83 1.72 0.52 183.1 5.87% 3.33% 16.45%
San Francisco 1.00 1.83 0.99 2.89 1.74 0.59 83.8 3.41% −4.4% 6.48%
Seattle 1.00 1.80 0.87 2.60 1.56 0.47 80.7 3.32% −3.6% 2.77%
Tampa 1.00 0.95 0.55 2.27 1.23 0.46 −4.4 −0.25% −8.4% 1.67%
Washington 1.00 1.42 0.95 3.04 1.65 0.52 42.7 1.99% −6.2% −7.44%
DC

Charlotte, Cleveland, Dallas, Minneapolis, San Francisco, and Tampa were not included due to the paucity of
residential land transactions in the CoStar data
Charlotte, Cleveland, Minneapolis, and Detroit were not included due to the paucity of commercial-industrial
land transactions in the CoStar data
 M. Fitzgerald et al.

Boston Chicago
Composite 20 Atlanta
3.5 7.0 3.5
2.5
Atlanta Land 6.0 3.0
Composite 20 Land
3.0 Boston Land Chicago Land
2.0 Atlanta Housing 5.0 2.5
Composite 20 Housing
Index Values

Index Values

Index Values
Boston Housing Chicago Housing

Index Values
2.5 1.5 4.0 2.0

3.0 1.5
2.0 1.0
2.0 1.0
1.5 0.5 1.0 0.5

1.0 0.0 0.0

0.0

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Semi Annual Period Semi Annual Periods Semi Annual Periods Semi Annual Periods

Denver Detroit Las Vegas Los Angeles

3.0 4.5 8.0 3.0
Los Angeles Land
Denver Land 4.0 Detroit Land 7.0
2.5 2.5 Los Angeles Housing
3.5 6.0 Las Vegas Land
Denver Housing Detroit Housing
2.0 3.0 2.0
Index Values

Index Values

Index Values

Index Values
5.0 Las Vegas Housing
2.5
1.5 4.0 1.5
2.0
3.0
1.0 1.5 1.0
1.0 2.0
0.5 0.5
0.5 1.0

0.0 0.0 0.0 0.0

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Semi Annual Periods Semi Annual Periods Semi Annual Periods Semi Annual Periods

Miami New York City Phoenix Portland

4.5 8.0 7.0 4.5
NYC Land Phx Land
4.0 7.0 4.0
6.0
3.5 Miami Land New York Housing Phoenix Housing 3.5 Portland Land
6.0
5.0
3.0 3.0
Index Values

Index Values

Index Values

Index Values
Miami Housing 5.0 Portland Housing
2.5 4.0 2.5
4.0
2.0 3.0 2.0
3.0
1.5 1.5
2.0
1.0 2.0 1.0
1.0 1.0
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San Diego Seattle Washington DC

7.0 3.5 8.0
Washington DC Land
Seattle Land
6.0 3.0 7.0
SanDiego Land Wasghington DC Housing
Seattle Housing 6.0
5.0 2.5
San Diego Housing
Index Values

Index Values

Index Values
5.0
4.0 2.0
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Fig. 2 Residential index comparisons by metro market (2000–2017)

indices. In fact, from these charts, one could argue that land prices appear to
exhibit a FILO (First In Last Out) process where, as part of the Great Recession
cycle, the land was the first to experience a rapid price decline and the last to
recover. A FILO process might be consistent for any raw material used in a
production process. For example, if there is too much inventory of raw material
in the manufacturing of a good, then the price of the raw material falls sharply
and does not recover until the existing inventory is used up and demand returns.
A similar concept could apply to vacant residential land as a raw material for
housing.
This FILO process also occurs with the commercial-industrial indices as shown in Fig. 3.
A visual examination of the land indices shows that in many cases the growth in the
land prices began to slow before improved property prices before the Great Recession.
Also, it appears that land prices in many cases peaked before improved property prices
before the Great Recession. Given this appearance, we examined the actual index
values for residential and commercial-industrial land and improved property indices
and found that this was indeed the case. Table 4 provides a summary of the findings of
this analysis.
Column 1 of Table 4 shows that out of the 15 markets where we were able to
construct land price indices, that residential land prices slowed before housing prices in
11 of the markets, or 73% of the time; however, column 2 shows that land prices
actually peaked before housing prices only 53% of the time, basically a dead heat. This
same finding was not the case for commercial-industrial land prices. Column 3 shows
that commercial-industrial land prices slowed before commercial-industrial improved
property prices in 17 out of 17 markets, or 100% of the time. Also, commercial-
industrial land prices peaked before the improved property prices in 12 out of 17 cases,
or 71% of the time. Although more formal testing is forthcoming, a cursory examina-
tion of the data suggests that land prices may be a leading indicator of the built
environment, especially in the commercial-industrial land market.
Urban Land: Price Indices, Performance, and Leading Indicators

Composite 20 Atlanta Boston Chicago

2.500 1.800 2.500 3.500
Composite 20 Land 1.600 Boston Land Boston CI Chicago Land
Atlanta Land Atlanta CI 3.000
2.000 1.400 2.000
Composite20 CI Chicago CI
2.500
1.200

Index Values
Index Values

Index Values

Index Values
1.500 1.500
1.000 2.000

0.800 1.500
1.000 1.000
0.600
1.000
0.500 0.400 0.500
0.500
0.200

0.000 0.000 0.000 0.000

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Dallas Denver Las Vegas Los Angeles

1.600 2.000 4.000 3.000
Dallas Land Los Angeles Land
1.400 1.800 3.500
Denver Land Denver CI
Vegas Land LasVegas CI 2.500
Dallas CI 1.600 Los Angeles CI
1.200 3.000
1.400
2.000

Index Values
Index Values

Index Values

Index Values
1.000 1.200 2.500

0.800 1.000 2.000 1.500

0.600 0.800 1.500

1.000
0.600
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0.400
0.500
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0.000 0.000 0.000 0.000

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Miami New York City Phoenix Portland

3.500 2.500 3.000 2.500
New York Land Portland Land
Miami Land Phoenix Land
3.000 2.500
2.000 New York CI 2.000 Portland CI
Miami CI Phoenix CI
2.500
2.000

Index Values
Index Values

Index Values

Index Values
1.500 1.500
2.000
1.500
1.500
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1.000
1.000
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0.500 0.500

0.000 0.000 0.000 0.000

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San Diego San Fransisco Seale Tampa

3.000 3.500 3.000 2.500
San Diego Land San Francisco Land Tampa Land
2.500 3.000 2.500 Seale Land Seale CI
San Diego CI 2.000
San Francisco CI Tampa CI
2.500
2.000 2.000

Index Values
Index Values

Index Values

Index Values 1.500

2.000
1.500 1.500
1.500
1.000
1.000 1.000
1.000
0.500
0.500 0.500 0.500

0.000 0.000 0.000 0.000

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2015_2

2017_2
2001_2

2002_2

2004_2

2005_2

2007_2

2010_2

2012_2

2013_2

2015_2

2001_2

2002_2

2004_2

2007_2

2009_2

2012_2

2014_2

2017_2

2001_2

2004_2

2006_2

2007_2

2009_2

2012_2

2014_2

2015_2

2017_2

2000_2

2002_2

2005_2

2007_2

2008_2

2010_2

2013_2

2016_2
Semi Annual Period Semi Annual Period Semi Annual Period Semi Annual Period

Washington D.C.
3.500
Washington DC Land
3.000
Washington DC CI
2.500
Index Values

2.000

1.500

1.000

0.500

0.000
2000_2

2003_2

2006_2

2008_2

2009_2

2011_2

2014_2

2016_2

2017_2
2001_2

2002_2

2004_2

2005_2

2007_2

2010_2

2012_2

2013_2

2015_2

Semi Annual Period

Fig. 3 Commercial-industrial index comparisons

Next, we used simple linear regression to more formally investigate the relationship
between land prices and improved property prices and to determine if land prices are a
leading indicator for the built environment.23 We began by regressing the values of the
housing indices on lagged values of the land price indices for each of the 15 metro
markets and the national market (Composite 20). We hypothesize that if the coefficient
on the lagged land price index variable were positive and significant, then this would
suggest that lagged land prices inform future improved property prices. We generated
metro level regressions for alternative lagged periods of 0 months, 6 months, 12 months,
18 months, and 24 months, respectively. Although not shown, the coefficients were
positive and significant in 12 of the 15 markets for the 0, 6, and 12 month lagged
periods; in 5 of the 15 markets for the 18 month lagged period, and 1 of the 15 markets
in the 24 month lagged period. These results suggest that the land price effect on
contemporary housing prices diminishes with time and is all but gone within two years.
Next, we conducted the same analysis for the commercial-industrial property markets.
In this case, we regressed the NCREIF Property Index values on the commercial-
industrial land price index values and found a similar trend as with the residential property
market. Specifically, the regression coefficients were positive and significant in 12 of the
17 markets for the 0 lagged period; in 10 of the 17 markets for the 6 month lagged period;
in 9 of the 17 metro markets for the 12 month lagged period; in 8 of the 17 markets for the
18 month lagged period; and in 5 of the 17 markets for the 24 month lagged period.

23
Although not precisely related to the current investigation of the time series properties of real estate indices,
Holly et al. (2011) provide a nice method for analyzing the spatial and temporal diffusion of shocks in housing
prices in the UK.
 M. Fitzgerald et al.

Table 4 Examination of land prices as a leading indicator of the built environment by metro market

Metro market Column 1 Column 2 Column 3 Commercial- Column 4 Commercial-

Residential land Residential land industrial land prices industrial land prices
prices slow first prices peak first slow first peak first

Composite 20 Yes Yes Yes Yes

Atlanta Yes Yes Yes Yes
Boston Yes No Yes Yes
Chicago Yes Yes Yes Yes
Dallas – – Yes Yes
Denver Yes No Yes Yes
Detroit No No – –
Las Vegas No No Yes No
Los Angeles Yes Yes Yes Yes
Miami Yes Yes Yes Yes
NYC No No Yes Same
Phoenix No No Yes Same
Portland Yes Yes Yes Yes
San Diego Yes Yes Yes Yes
San Francisco – – Yes Same
Seattle Yes Yes Yes Yes
Tampa – – Yes No
Washington DC Yes No Yes Yes

Charlotte, Cleveland, and Minneapolis were not included in the city level indices due to the paucity of land
transactions in the CoStar data

On the face of it, the empirical analysis so far suggests that land prices tend to lead
improved property prices. This finding would indicate that land prices are an important
leading indicator for the built environment; however, endogeneity or simultaneity bias
may be at play; therefore, further investigation is warranted. This form of bias may
occur when simultaneous causality occurs between variables (the chicken or the egg
quandary). For instance, one could argue that because land is a raw material in the
manufacture of improved properties, or the built environment, that increases in land
prices signal future increases in improved property prices. However, a counter-
argument is that demand for homes, or increases in the price of homes, leads to
increases in the demand for land and subsequent increases in the price of land. As a
first check for simultaneity bias, we flipped the regressions and regressed land prices on
lagged housing prices. Although not reported for brevity, the results of these regres-
sions showed a high correlation between improved property prices and land prices, but
the results were not as pronounced as those found previously; however, it is clear that
simple regressions are not adequate to make a statement as to causality.
To pursue the question of causation further (are land prices a leading indicator of
improved property prices) we employed Granger Causality tests. With this framework
in mind, we first tested for causality between the residential land index values and the
S&P CoreLogic Case-Shiller Housing Index values over three distinct periods. These
periods include the entire index series (2000–2017), the beginning of the series to the
Urban Land: Price Indices, Performance, and Leading Indicators

peak of the market and before the crash (2000–2006), and after the peak to the end of
the index series (2007–2017). Table 5 provides the results of the Granger causality tests
for the national market (Composite 20).
Panel A shows that we reject the null hypothesis (that Residential Land Index does
not Granger cause S&P CoreLogic Case-Shiller Housing Index for all periods and after
the market peak). This result suggests that residential land, especially during periods of
rapid price decline, is a leading indicator of housing prices. There is no indication that
causality moves in the other direction at the national level. Panel B provides the results
for the commercial-industrial indices and shows that commercial-industrial land prices
are a leading indicator of commercial-industrial improved property prices after the
market peak (2007–2017). Counter to the findings with residential indices there is some
indication that during the run-up or before market peak (2000–2006) the causality
moved in the other direction.
Because we found a causal relation between the residential land price index and the
housing price index as well as the commercial-industrial land price index and the
NCREIF Property Index, we then sought to determine if the series are cointegrated.
There are typically two approaches for determining if there is cointegration between
two variables. The first approach involves plotting the difference or spread between two
variables and examining the trend. If the spread or difference hovers around zero, then
the two variables would appear to be cointegrated.

Table 5 Results of the granger causality tests composite 20 national market

Null hypothesis F-statistic P value

Panel A – residential indices

All periods (2000–2017)
S&P/C-S housing index does not granger cause residential land index 0.664 0.421
Residential land index does not granger cause S&P/C-S housing index 5.11* 0.031
Before peak (2000–2006)
S&P/C-S housing index does not granger cause residential land index 4.16 0.066
Residential land index does not granger cause S&P/C-S housing index 2.29 0.159
After peak (2007–2017)
S&P/C-S housing index does not granger cause residential land index 3.37 0.083
Residential land index does not granger cause S&P/C-S housing index 41.6* 0.000
Panel B – C&I indices
All periods (2000–2017)
NCREIF property index does not granger cause C&I land index 2.18 0.149
C&I land index does not granger cause NCREIF property index 0.079 0.406
Before peak (2000–2006)
NCREIF property index does not granger cause C&I land index 7.20* 0.021
C&I land index does not granger cause NCREIF property index 0.279 0.608
After peak (2007–2017)
NCREIF property index does not granger cause C&I land index 1.87 0.188
C&I land index does not granger cause NCREIF property index 5.24* 0.034

* Significant at the 5% level of significance. Commercial-industrial (C&I)

 M. Fitzgerald et al.

Figure 4 Panel A shows a dramatic difference between the national residential land
index values and housing price index values during the boom and bust periods that
occurred between 2003 and 2009 (about six years). Panel B provides the difference
between the national commercial-industrial land price index values and the NCREIF
Property Index values. The chart shows that the commercial-industrial indices diverged
dramatically between the years 2002 and 2010 (about eight years) a longer period
compared with the residential indices. Overall, the examination of the comparison
charts suggests that during periods of boom and bust land and improved property price
indices may not be cointegrated; however, during more stable periods cointegration
may exist between the indices
The second approach involves formal statistical tests for cointegration. The first step
for testing for cointegration requires that the order of integration be verified for each
variable by performing unit root tests. The Augmented Dickey-Fuller (ADF) test

a
3.500

3.000
Composite 20 Residential Land Price Indices
2.500
Composite 20 S&P CoreLogic Case-Shiller Home Price
Indices
2.000
Normalized Index Level

1.500

1.000

0.500

0.000

-0.500

-1.000
SA_1999_2

SA_2002_1

SA_2003_2

SA_2006_1

SA_2007_2

SA_2010_1

SA_2011_2

SA_2014_1

SA_2015_2
SA_2000_1
SA_2000_2
SA_2001_1
SA_2001_2

SA_2002_2
SA_2003_1

SA_2004_1
SA_2004_2
SA_2005_1
SA_2005_2

SA_2006_2
SA_2007_1

SA_2008_1
SA_2008_2
SA_2009_1
SA_2009_2

SA_2010_2
SA_2011_1

SA_2012_1
SA_2012_2
SA_2013_1
SA_2013_2

SA_2014_2
SA_2015_1

SA_2016_1
SA_2016_2
SA_2017_1
SA_2017_2

b
2.500
Composite 20 Commercial and Industrial Land Price Indices
2.000 Composite 20 NCREIF Commercial Indices
Difference
1.500
Normalized Index Values

1.000

0.500

0.000

-0.500

-1.000
SA_1999_2

SA_2002_1

SA_2004_2

SA_2007_1

SA_2008_1

SA_2009_2

SA_2010_2

SA_2012_1

SA_2013_1

SA_2014_2

SA_2015_2

SA_2017_1
SA_2000_1
SA_2000_2
SA_2001_1
SA_2001_2

SA_2002_2
SA_2003_1
SA_2003_2
SA_2004_1

SA_2005_1
SA_2005_2
SA_2006_1
SA_2006_2

SA_2007_2

SA_2008_2
SA_2009_1

SA_2010_1

SA_2011_1
SA_2011_2

SA_2012_2

SA_2013_2
SA_2014_1

SA_2015_1

SA_2016_1
SA_2016_2

SA_2017_2

Fig. 4 a Difference comparison (residential indices) composite 20—residential land price index and the S&P
corelogic case-shiller housing price index January 2000-2017. b difference comparison (C&I indices)
composite 20—commercial-industrial land price index and the NCREIF property price index
January 2000-2017
Urban Land: Price Indices, Performance, and Leading Indicators

Table 6 Results of unit root tests (variables in level) composite 20 national indices

Results of unit root tests (variables in level) ADF test PP test

Panel A – residential indices

All periods (2000–2017)
Residential land index −1.9590 (1) −1.5893
S&P C-S housing index −2.1824 (3) −1.4890
Before peak periods (2000–2006)
Residential land index −1.6258 (0) −5.140
S&P C-S housing index −1.5549 (0) −1.6953
After peak periods (2007–2017)
Residential land index −2.4656 (0) −2.4866
S&P C-S housing index −3.9711 (1)* −4.2566*
Panel B – C&I indices
All periods (2000–2017)
C&I land index −2.4503 (2) −1.4891
NCREIF property index −1.6964 (2) −1.6767
Before peak periods (2000–2006)
C&I land index −3.0707 (0) −3.0603
NCREIF property index 1.9741 (0) 2.2715
After peak periods (2007–2017)
C&I land index −3.2064 (0) −3.1863
NCREIF property index −1.7158 (0) −1.7923

* Indicates that the result is significant at the 5% level of significance. The numbers in parentheses for the
ADF test are the optimal lag lengths as determined by the AIC. The test includes a constant term and time
trend. The critical value of the ADF and the PP t-statistic at the 5% level is −3.41 and − 2.86 respectively.
Case-Shiller (CS)

(Dickey and Fuller 1979) and the Phillips-Perron (PP) test (Phillips and Perron 1988)
are typically considered the most common methods for performing the unit root tests.
The null hypothesis in both tests is that the series has a unit root and is nonstationary. If
the null hypothesis is not rejected in levels but is in first differences, then the series is
considered to have a unit root.24 If two series are stationary in first differences, then
there could be a linear combination of the series. This would satisfy the requirement for
cointegration.
Table 6 Panel A shows the results of the unit root tests for the residential indices and
indicates that the null hypothesis of a unit root in levels cannot be rejected (5%
significance level) for both the residential land price index and the S&P CoreLogic
Case-Shiller housing index over alternative time periods. The exception is the S&P
CoreLogic Case-Shiller housing index during the after-peak periods (2007–2017). In
this case, the null hypothesis of a unit root is rejected in both the ADF and PP tests.
Panel B, which includes the unit root tests in levels for commercial-industrial indices,
shows that, with rare exception, the null hypothesis of a unit root in level cannot be

24
A failure to reject the null hypothesis of the unit root is a necessary condition for formal cointegration tests.
 M. Fitzgerald et al.

Table 7 Results of unit root tests (variables in first difference) composite 20 national price indices

ADF test PP test

Panel A – residential indices

All periods (1999–2017)
Residential land index −2.8114 (1) −4.0225*
S&P/C-S housing index −1.8389 (3) −2.1658
Before peak periods (1999–2006)
Residential land index −2.0054 (0) −2.0657
S&P/C-S housing index −0.30856 (0) −0.3494
After peak periods (2007–2017)
Residential land index −2.3141 (1) −4.0143*
S&P/C-S housing index −2.3720 (3) −2.5397
Panel B – C&I indices
All periods (1999–2017)
C&I land index −2.2104 (1) −3.6700*
NCREIF property index −2.6380 (1) −2.569
Before peak periods (1999–2006)
C&I land index −2.8904 (1) −4.6755*
NCREIF property index 0.65269 (0) 2.6162
After peak periods (2007–2017)
C&I land index −4.2521* −6.7180*
NCREIF property index −1.3776 (4) −3.9397*

* Indicates that the result is significant at the 5% level of significance. The numbers in parentheses for the ADF
test are the optimal lag lengths as determined by the AIC. For both tests, a constant term and time trend are
included. The critical value of the ADF and the PP t-statistic at the 5% level is −3.41 and − 2.86 respectively

rejected (5% significant level) for both the commercial-industrial land price index and
the NCREIF Property Index over alternative periods.
Table 7 shows the results of the unit root tests for the variables in first
differences. Panel A shows that when using the ADF test we fail to reject the
null hypothesis of a unit root in all periods; however, the PP test shows that we
reject the null hypothesis for the residential land price indices for all periods and
after peak periods. Panel B shows that when using the PP test the null hypothesis
is significant for commercial-industrial land price indices in all periods, before the
peak, and after the peak; however, this is not the case for the NCREIF Property
Indices. Because the time series in first differences are nonstationary in all cases, a
necessary condition, we are unable to perform a formal test for cointegration.
Therefore, we are unable to determine if the indices are cointegrated.
Therefore, based on the above tests, coupled with a visual examination of the
indices, there is compelling evidence that during periods of severe downturn land
prices are a leading indicator of the price changes in the built environment.
Urban Land: Price Indices, Performance, and Leading Indicators

Summary and Conclusion

This study had two objectives: first, to evaluate the historical performance of
land prices across 20 prominent U.S. metro markets; and second, to deter-
mine if urban land prices are a leading indicator for prices in the built
environment.
We began the study by obtaining land transactions from CoStar Group, Inc.,
that occurred from 2000 through 2017 and that were located in the 20 U.S.
metro markets that make up the S&P CoreLogic Case-Shiller Housing Price
Indices. The data were separated into two categories according to land use
(residential and commercial-industrial). We found that after an initial drop in
transaction volume in 2001, probably resulting from the dot-com crash, trans-
action frequency increased monotonically from 2001 to 2004, followed by a
steep monotonic decline through 2009. After reaching a trough in 2009,
transaction volume experienced a monotonic increase for seven consecutive
years through 2016; however, in 2017 transaction volume tapered off.
We also found that on an annual basis the total acres purchased increased
monotonically from 2000 to 2005, then declined monotonically through 2008.
Since 2008 the total acres transacted annually has been relatively low. In fact,
the lowest number of acres purchased over the 18 years occurred in 2017. We
also found that since 2009 there has been a general decline in the number of
acres purchased per transaction. In fact, over the last three years, the average
number of acres per transaction has been approximately 11 acres, almost one-
half the average number of acres purchased per transaction over the entire 18-
year period. Also, we found that during the early years of the study the average
distance to the CBD increased, suggesting that land development was taking
place on the periphery and farther away from the central city. In 2009 the
average distance peaked at 22.42 miles; however, after 2009, there was a shift
in the other direction, with distance to the CBD gradually declining, suggesting
that demand for larger tracts of land in the suburbs has given way to smaller
tracts closer to the central city.
Next, using a time-varying econometric model, with spatial controls, we
constructed constant-quality metro-level land price indices. We found that from
2000 to 2017 (18 years) national residential urban land prices appreciated by
2.08% annually, and national commercial-industrial urban land prices appreciated by
1.87%.
We also compared the new land price indices with prominent improved
property indices including the S&P CoreLogic Case-Shiller Housing Price Indi-
ces for residential properties and the NCREIF Property Indices for commercial-
industrial properties. The analysis found that on a national basis residential land
prices exhibited greater volatility compared with home prices and that residential
land prices peaked before home prices before the Great Recession. Also, the
analysis found that residential land prices have been slower to recover compared
with home prices. These same relations were found when comparing national
commercial-industrial urban land prices and improved property prices.
 M. Fitzgerald et al.

After constructing and examining the land prices indices, we next set out to
determine if land prices were a leading indicator for the built environment by using
simple linear regressions, Granger Causality tests, and cointegration tests. When
investigating the national urban land market, the simple linear regression analysis and
cointegration tests did not provide conclusive evidence that land prices were a leading
indicator of improved property prices; however, the Granger Causality tests provide
compelling evidence that from the peak of the market in 2007 through 2017, land prices
were a leading indicator of prices in the built environment. This finding suggests that
during a strong downturn in the market land prices provide an early signal of future
price changes in the built environment.
One topic of future research is a study of metropolitan locations such as the Central
Business District compared with the suburbs. Another extension of this research would
be an investigation of more metro markets.

Funding This work was supported by the USAA Real Estate, the James Passey Professorship, and the Peery
Institute of Financial Services at the BYU Marriott School of Business. The standard disclaimer applies.

Appendix

Table 8 Sample chained regression output residential land composite 20 (national market) Jan 2000 through
Dec 2000 (12 months) 5144 observations

Variable Parameter estimate t-Statistic

Land area variable

Ln of land square feet −0.6394 −91.38*
Spatial controls (Distance variables)
Ln of miles to CBD 0.0409 1.62
Ln of miles to highest HH Inc. Zip −0.0930 −4.96*
Ln of miles to nearest Walmart 0.05993 3.84*
Ln of miles to nearest freeway exit −0.0727 −5.83*
Ln of miles to nearest hospital −0.1671 −10.00*
Ln of miles to nearest prison −0.0103 −0.63
Ln of miles to nearest major university −0.1052 −4.82*
Miles to nearest major airport −0.0089 −2.24*
Miles to nearest airport squared 0.00007 0.94
(Time) 2nd half 2000 0.02511 1.16
Intercept
Intercept 9.921 99.25*
R-squared (Adjusted) 0.7494

* significant at the 5% level

Publisher’s Note Springer Nature remains neutral with regard to jurisdictional claims in published maps and
institutional affiliations.
Urban Land: Price Indices, Performance, and Leading Indicators

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