Working Paper: CEPR ID: DP17780
Authors: Francisco Amaral; Martin Dohmen; Sebastian Kohl; Moritz Schularick
Abstract: Rising within-country differences in house values are a much debated trend in the U.S. and internationally. Using new long-run regional data for 15 advanced economies, we first show that standard explanations linking growing price dispersion to rent dispersion are contradicted by an important stylized fact: rent dispersion has increased far less than price dispersion. We then propose a new explanation: a uniform decline in real risk-free interest rates can have heterogeneous spatial effects on house values. Falling real safe rates disproportionately push up prices in large agglomerations where initial rent-price ratios are low, leading to housing market polarization on the national level.
Keywords: house prices; regional housing markets; spatial polarization
JEL Codes: G10; G12; G51; R30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Decline in real risk-free interest rates (E43) | Heterogeneous spatial effects on housing prices (C21) |
| Decline in real risk-free interest rates (E43) | Increased overall housing price dispersion (R31) |
| Decline in real risk-free interest rates (E43) | Stronger increase in price-rent ratio in cities with initially low rent-price ratios (R31) |
| Decline in real risk-free interest rates (E43) | Rise in housing prices (R31) |
| Heterogeneous spatial effects on housing prices (C21) | Increased overall housing price dispersion (R31) |
| Initial heterogeneity in rent-price ratios (R21) | Growing dispersion in housing prices (R31) |