Determinants of new housing prices in Medellín: A structural model

We employ a multi-equation structural model of the housing market to analyze the determinants of new housing prices in Medellin during 2009-2014. The model includes observed variables and unobserved variables, such as costs that are not included in the housing cost index, but that still affect prices. In the analysis, we employ an industrial organization framework to examine the interaction between microeconomic and macroeconomic variables. The results indicate that employment, economic growth, and public policies (subsidies) affect real housing prices positively, while inflation affects real prices negatively. In addition to the variables typically included in the analysis in prior research, we include several determinants of housing supply, including construction costs, and two market interest rates.