The Price and Quantity of Residential Land in the United States

Summary

"The Price and Quantity of Residential Land in the United States" is a 2007 paper by Morris A. Davis (then at the Federal Reserve Bank of Cleveland and later Rutgers University) and Jonathan Heathcote (Federal Reserve Bank of Dallas), published in the Journal of Monetary Economics, vol. 54, no. 8 (November 2007), pp. 2595–2620 (DOI 10.1016/j.jmoneco.2007.06.023).[1] The paper constructs a quarterly price index and quantity measure for residential land in the United States, using a residual method that separates land value from structure value in aggregate residential property data. The resulting "Davis-Heathcote land price series" became a widely used benchmark in macroeconomics and urban economics for tracking residential land values over time, and is cited in subsequent land-value research including the Albouy, Ehrlich & Shin metropolitan land values study, which compares its residual-method estimates against transaction-based measures.

The Core Method and Findings

The paper's central methodological approach is the residual method: the market value of the residential housing stock is taken from the Federal Reserve's Flow of Funds Accounts, structure value is priced at replacement cost (using Census Bureau construction-cost data and the American Housing Survey), and land value is recovered as the residual.[1] The authors derive a quarterly price index for residential land for 1975:Q1–2006:Q2, and splice on a lower-frequency historical land-price series back to 1930.[1]

Key findings, verified against the paper's full text (2026-07-07):[1]

• Residential land value is large relative to GDP. By 2006:Q2, Davis and Heathcote value US residential land at $11.6 trillion — about 88% of GDP and 46% of the value of the housing stock. (They estimate the housing stock itself at $24.1 trillion at end-2005, ≈1.42× the combined capitalization of the NYSE, Nasdaq, and Amex.)[1]
• Residential land prices are volatile. "At business cycle frequencies the price of land is more than three times as volatile as the price of structures," so both trend growth and cyclical swings in house prices are "primarily attributable to changes in the price of residential land and not to changes in the price of structures."[1]
• The land share of home value rose over the period. Land accounted, on average, for 36% of the value of the aggregate housing stock over 1975–2006, but on a rising long-run trend — from below that average in the 1970s–80s to 46% by 2006:Q2 — as the inflation-adjusted price of residential land nearly quadrupled while real structure prices rose only 33% cumulatively.[1]

Relation to the Georgist Case

This paper's relevance to Georgism is evidentiary rather than argumentative: the authors do not advocate land value taxation or engage with Georgist fiscal theory. What the paper provides is a mainstream, Federal-Reserve-affiliated measurement of the scale and dynamics of US residential land value — precisely the kind of independent, non-advocacy data that Georgist revenue-sufficiency arguments depend on. By constructing a systematic, reproducible land-price series from within the economics establishment, Davis and Heathcote supply a credible anchor for the empirical premise behind the land rent could fund government outcome: that the value of land (and by extension the rent it generates) is large enough to be fiscally significant.

The paper is part of a broader family of US land-value measurement studies represented on this wiki, including:

• Larson (2015) — a BEA working paper estimating total US land value at ~$23 trillion (2009) using hedonic methods rather than the residual approach.
• Albouy, Ehrlich & Shin (2018) — a transaction-based land-value index for US metro areas that explicitly compares against the residual-method estimates of Davis and Palumbo (2008), a closely related companion paper.

The Davis-Heathcote series and the Davis-Palumbo (2008) city-level series together represent the residual-method tradition in US land-value measurement, against which the transaction-based approach of Albouy, Ehrlich & Shin was developed as an alternative. The Albouy et al. paper notes that the residual method can produce implausible results — including negative land values in some periods — which motivated their transaction-based alternative. At the national aggregate, Davis and Heathcote's own series stays firmly positive throughout (a 36%-average, rising-to-46% land share), so the negative-value problem Albouy et al. highlight arises in disaggregated or Flow-of-Funds-style series rather than in the Davis-Heathcote national index itself.[1]

Nuances and Limits

• Residual method limitations. The residual approach inherits all the difficulties of accurately estimating structure replacement costs; errors in structure-cost estimation flow directly into the land-value residual. The Albouy, Ehrlich & Shin (2018) paper argues that the residual method "mechanically misattributes costs from land-use regulation and construction inefficiency to land value" and can produce implausible results, including negative estimated land values in the Federal Reserve's Flow of Funds series. Davis and Heathcote build their structure-cost estimate from Census construction data rather than reading a land residual straight off the Flow of Funds, and their national series avoids negative values (see above), but the underlying dependence on structure-cost accuracy is common to both.[1]
• Residential land only. The paper covers residential land, not commercial, agricultural, or other land uses; its aggregate figures are a subset of total US land value, and the paper does not attempt to scale them up to an all-land total.[1]
• Stock value, not annual rent. The paper reports price indices and stock values, not a rental (imputed-rent) flow or an explicit capitalization rate; converting its land-value figures to an annual land-rent flow therefore requires a capitalization-rate assumption supplied from outside the paper.[1]
• Data vintage and updates. The paper's estimates run through 2006:Q2, just before the housing crash; the authors have since maintained and extended the series as the "Land and Property Values in the U.S." dataset (Lincoln Institute of Land Policy), which carries the national land-price and land-share measures forward through the 2007–09 bust and subsequent recovery.[1][4]
• Not a tax-policy document. The paper makes no policy recommendations regarding land value taxation, incidence, or revenue capacity.

Bears On

• Outcome: Land rent could fund a large share of government — provides a Federal-Reserve-affiliated, mainstream estimate of the scale of US residential land value, supporting the empirical premise that the land-value base is fiscally significant, though the paper itself does not estimate annual rent or revenue capacity.
• Objection: LVT can't raise enough revenue — the paper's land-value estimates contribute to the evidentiary base on both sides of this debate: they establish that land value is large, but (as a stock measure) do not by themselves resolve how much annual revenue a land value tax could sustainably raise.
• Concept: Economic Rent — a land-value stock estimate is the necessary starting point for any argument about the scale of land rent as a flow.
• Concept: Mass Appraisal Methods — the residual method used by Davis and Heathcote is one of the core approaches to land/building separation discussed in the assessment literature.

See Also

• Kuminoff & Pope — the hedonic check on this residual method · Hudson 2001 — the critique of Fed land accounting
• Larson — New Estimates of Value of Land of the United States
• Albouy, Ehrlich & Shin — Metropolitan Land Values
• Land Rent Could Fund Government
• Economic Rent
• Objection: LVT Can't Raise Enough Revenue

Sources

1. Morris A. Davis & Jonathan Heathcote, "The Price and Quantity of Residential Land in the United States," Journal of Monetary Economics, vol. 54, no. 8 (November 2007), pp. 2595–2620. DOI 10.1016/j.jmoneco.2007.06.023. Author's open full-text PDF: jonathanheathcote.com/land-final.pdf — fetched and read in full (2026-07-07); all figures on this page verified against it: the $11.6 trillion / 88%-of-GDP / 46%-of-housing-stock 2006:Q2 land value, the 36% average land share over 1975–2006, the "more than three times as volatile as the price of structures" finding, the near-quadrupling of real land prices vs. 33% for structures, the Flow-of-Funds + Census + AHS data, the 1975:Q1–2006:Q2 quarterly index (with a spliced 1930–2000 historical series), and the $24.1 trillion end-2005 housing stock.
2. David Albouy, Gabriel Ehrlich & Minchul Shin, "Metropolitan Land Values," The Review of Economics and Statistics, vol. 100, no. 3 (July 2018), pp. 454–466. DOI: 10.1162/rest_a_00710 — used for the comparison of residual-method vs. transaction-based land-value estimates and the critique of the residual approach, as documented on this wiki's dedicated page.
3. Morris A. Davis & Michael G. Palumbo, "The Price of Residential Land in Large US Cities," Journal of Urban Economics, 63(2), 2008, pp. 352–384. Author's PDF: morris.marginalq.com/papers/2007-02-Davis-Palumbo.paper.pdf — cited within Albouy, Ehrlich & Shin as the residual-method comparison benchmark; a closely related companion paper to the Davis-Heathcote national-level series.
4. Morris A. Davis et al., "Land and Property Values in the U.S.," Lincoln Institute of Land Policy data set. lincolninst.edu — the ongoing, updated series (national land prices and land shares) descended from Davis & Heathcote (2007), used for the note that the series has been extended past 2006.