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House prices, household saving and financial market liberalization in Finland

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  • Koskela, Erkki
  • Loikkanen, Heikki A.
  • Viren, Matti

Abstract

This paper describes some institutional aspects of housing, markets and analyzes the price development of owner-occupied housing and its interaction with the household saving ratio in Finland during the last two decades. In Finland the volatility of house prices in relation to income can to a large extent be traced to the major changes in financial market conditions. Two other factors have also contributed to the house price volatility, namely the favourable tax treatment of housing (and othe.r) loans and the "thin" rental markets. The former has increased the rate of retum on housing, while the "thin" rental markets have resulted from rent regulation, which has decreased the supply of rental housing. The evidence suggests that in addition to the financial market conditions - measured by the households' indebtedness rate - both the after-tax rate of return and housing and the "thinness" of rental markets have all had a positive effect on house prices. Finally, demographic factors seym to have some, though relatively minor, role in house price development, while the real income variable cannot be estimated precisely. As for the linkages between housing markets and saving behaviour, our analysis lies in conformity with the view that the rate of change of real house prices has affected negatively and the after-tax nominal interest rate positively the household saving ratio. We are tempted to interpret these findings as suggesting that financial market conditions, and particularly.the financial market liberalization after the mid-1980 also explains the de cline in the household saving ratio during the housing market booms.
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Suggested Citation

  • Koskela, Erkki & Loikkanen, Heikki A. & Viren, Matti, 1992. "House prices, household saving and financial market liberalization in Finland," European Economic Review, Elsevier, vol. 36(2-3), pages 549-558, April.
    • Handle: RePEc:eee:eecrev:v:36:y:1992:i:2-3:p:549-558
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    1. repec:zbw:bofrdp:1991_010 is not listed on IDEAS
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    Cited by:

    1. Lennart Berg, 2002. "Prices on the second-hand market for Swedish family houses: correlation, causation and determinants," European Journal of Housing Policy, Taylor and Francis Journals, vol. 2(1), pages 1-24.
    2. repec:zbw:bofrdp:2008_008 is not listed on IDEAS
    3. Essi Eerola & Niku Maattanen, 2018. "Borrowing constraints and housing market liquidity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 184-204, January.
    4. Florian Léon, 2019. "Household Credit and Growth: International Evidence," DEM Discussion Paper Series 19-02, Department of Economics at the University of Luxembourg.
    5. Jakob B Madsen, 2011. "A Repayment Model of House Prices," Monash Economics Working Papers 09-11, Monash University, Department of Economics.
    6. Conceição Pereira, 2003. "The Effects of Households’ and Firms’ Borrowing Constraints on Economic Growth," GEMF Working Papers 2003-04, GEMF, Faculty of Economics, University of Coimbra.
    7. Kuismanen, Mika & Laakso, Seppo & Loikkanen, Heikki A., 1999. "Demographic Factors and the Demand for Housing in the Helsinki Metropolitan Area," Discussion Papers 191, VATT Institute for Economic Research.
    8. International Monetary Fund, 2007. "Turkey: Selected Issues," IMF Staff Country Reports 2007/364, International Monetary Fund.
    9. Takala, Kari, 1995. "Permanent income hypothesis and saving in Finland," Research Discussion Papers 15/1995, Bank of Finland.
    10. Madsen, Jakob B., 2012. "A behavioral model of house prices," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 21-38.
    11. Elias Oikarinen, 2010. "Foreign Ownership of Stocks and Long-run Interdependence Between National Housing and Stock Markets—Evidence from Finnish Data," The Journal of Real Estate Finance and Economics, Springer, vol. 41(4), pages 486-509, November.
    12. Carmen M. Reinhart & Ioannis Tokatlidis, 2003. "Financial Liberalisation: The African Experience," Journal of African Economies, Centre for the Study of African Economies, vol. 12(Supplemen), pages 53-88, September.
    13. Bandiera, Oriana & Caprio, Gerard & Honohan, Patrick & Schiantarelli, Fabio, 1999. "Does financial reform increase or reduce savings ?," Policy Research Working Paper Series 2062, The World Bank.
    14. Takala, Kari, 1995. "Permanent income hypothesis and saving in Finland," Bank of Finland Research Discussion Papers 15/1995, Bank of Finland.
    15. repec:zbw:bofrdp:1995_015 is not listed on IDEAS
    16. repec:zbw:bofrdp:1995_028 is not listed on IDEAS
    17. Eerola Essi & Määttänen Niku, 2012. "Borrowing Constraints and House Price Dynamics: The Case of Large Shocks," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(3), pages 1-36, September.
    18. M Ball, 1994. "The 1980s Property Boom," Environment and Planning A, , vol. 26(5), pages 671-695, May.
    19. Englund, Peter & Ioannides, Yannis M., 1997. "House Price Dynamics: An International Empirical Perspective," Journal of Housing Economics, Elsevier, vol. 6(2), pages 119-136, June.
    20. Stephanie Seguino & Maria Sagrario Floro, 2003. "Does Gender have any Effect on Aggregate Saving? An empirical analysis," International Review of Applied Economics, Taylor & Francis Journals, vol. 17(2), pages 147-166.
    21. Adams, Zeno & Füss, Roland, 2010. "Macroeconomic determinants of international housing markets," Journal of Housing Economics, Elsevier, vol. 19(1), pages 38-50, March.
    22. Takala, Kari & Virén, Matti, 1995. "Bankruptcies, indebtedness and the credit cruch," Research Discussion Papers 28/1995, Bank of Finland.
    23. Loikkanen, Heikki A. & Kurri, Samu & Laakso, Seppo, 1998. "Land Prices in Finland - Information System and Price Developments," Discussion Papers 161, VATT Institute for Economic Research.
    24. Eerola, Essi & Määttänen, Niku, 2008. "On the importance of borrowing constraints for house price dynamics," Research Discussion Papers 8/2008, Bank of Finland.
    25. Bengt Turner, 1999. "Social Housing Finance in Sweden," Urban Studies, Urban Studies Journal Limited, vol. 36(4), pages 683-697, April.

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