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McGrath
Table 2. OLS Estimates of the Determinants of New Housing Investment in
Indiana for 2003
Variable C oefficient Standard error
PROPTAX 0.236* 0.120
INCTAX 0.141 0.174
COST - 6.52E-06*** 2.28E-06
MEDVAL 1.16E- 05 7.24E-06
INCOME 6.54E- 05*** 1.84E-05
UE - 0.162** 0.073
AGE65+ - 0.102** 0.047
Constant - 0.531 1.104
Notes
Observations 91
Adj R 2 0.66
R 2 0.69
DW 2.05
* = significant at the 90% level of confidence
** = significant at the 95% level of confidence
*** = significant at the 99% level of confidence
We report th at, ceteris paribus, the cost of new ho me construction decreases investment
rates. The coefficient of the COST va riable is nega tive and stati stically significant at the 9 9%
level of confidence. However, we cannot show evidence that the median value of existing homes
in the county influences the de mand for new cons truction. The c oefficient for MEDVAL i s not
statistically significant.
Offsetting the cost variables to some extent, m edian count y incom e is positively
associated with new housing investment. The coefficient of INCOME is positive and statistically
significant. Since both t he INCOME and COST variables ar e measured in the sa me units –
simply dollars – we can say that the positive impact of a one-dollar increase in income outweighs
the negative i mpact of a one-dollar increase in construction costs, based upon the coefficients.
This is to be expected as this period ’s income is a strong indicator of the futur e income stream
and, in turn, the ability to purchase the asset.
Higher rates of county unemployment seem to discourage new housing construction. The
coefficient f or the UE variable is ne gative a nd statistically significant. Each one percent
difference in the count y unemployment rate tr anslates into a 0.16 percent decrease in new
housing investment.
Finally, t he percentage of count y residents 65 years of age o r older is negatively
associated with new housing construction. This result is not surprising as an older population is
less mobile. The statistic may also point to the mix of public services offered by the county. The
mix demanded by an older population is likely not the same as the mix demanded by a younger
population – the population most likely to build new homes.
SUMMARY AND IMPLICATIONS FOR FURTHUR RESEARCH
ASBBS E-Journal, Volume 4, No.1, 2008 146