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Soaring House Prices in Major Cities: How to Spot and Moderate Them

In: Hot Property

Author

Listed:
  • Grégory Claeys

    (Bruegel)

  • Konstantinos Efstathiou

    (Bruegel)

  • Dirk Schoenmaker

    (Bruegel
    Erasmus University Rotterdam)

Abstract

Rapidly rising house prices are a well-known source of financial instability. This chapter examines whether there are regional differences in house price growth within European countries and, whether this warrants more targeted measures to address vulnerabilities. The focus is on the division in terms of house prices between the capital cities and the rest of the territories of six EU countries. There is evidence of a decoupling between capitals and the rest of the country. House prices in capitals seem to have a stronger cyclical component which would indicate a clear rationale for regional-level tools. An instrument that could be used locally is tax. But adjusting taxes to dampen house prices would be very difficult. Structural measures to adjust the housing supply, such as relaxing planning restrictions typically have a long lead time. An alternative is to use macroprudential measures at a regional level, in particular loan-to-value and debt-to-income limits. In that way, the housing boom-bust cycle might be dampened.

Suggested Citation

  • Grégory Claeys & Konstantinos Efstathiou & Dirk Schoenmaker, 2019. "Soaring House Prices in Major Cities: How to Spot and Moderate Them," Springer Books, in: Rob Nijskens & Melanie Lohuis & Paul Hilbers & Willem Heeringa (ed.), Hot Property, chapter 0, pages 169-179, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-11674-3_15
    DOI: 10.1007/978-3-030-11674-3_15
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