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On Roots of Housing Bubbles

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  • Erdem Basci
  • Ismail Saglam

Abstract

This paper is about instability of equilibrium real rents in a pure exchange economy. Our main result hinges upon a low degree of substitutability between housing services and other commodities together with a low share of owner-occupied houses. We argue that regions or economies with a low share of owner-occupied houses are more prone to housing bubbles that are driven by locally unstable rent dynamics.

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File URL: http://www.tcmb.gov.tr/research/discus/WP0803ENG.php
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Bibliographic Info

Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 0803.

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Date of creation: 2008
Date of revision:
Handle: RePEc:tcb:wpaper:0803

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Related research

Keywords: Housing bubbles; rents; stability of equilibrium; CES utility; Leontief utility;

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References

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  1. John Y. Campbell & Joao F. Cocco, 2004. "How Do House Prices Affect Consumption? Evidence From Micro F. Data," Harvard Institute of Economic Research Working Papers 2045, Harvard - Institute of Economic Research.
  2. Piazzesi, Monika & Schneider, Martin & Tuzel, Selale, 2007. "Housing, consumption and asset pricing," Journal of Financial Economics, Elsevier, vol. 83(3), pages 531-569, March.
  3. Reinhart, Carmen & Ogaki, Masao, 1998. "Intertemporal substitution and durable goods: long-run data," MPRA Paper 13683, University Library of Munich, Germany.
  4. Shiller, Robert J, 1990. "Speculative Prices and Popular Models," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 55-65, Spring.
  5. Daniel Kahneman & Jack L. Knetsch & Richard H. Thaler, 1991. "Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 193-206, Winter.
  6. Angela Black & Patricia Fraser & Martin Hoesli, 2006. "House Prices, Fundamentals and Bubbles," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(9-10), pages 1535-1555.
  7. Kenny, Geoff, 1999. "Modelling the demand and supply sides of the housing market: evidence from Ireland1," Economic Modelling, Elsevier, vol. 16(3), pages 389-409, August.
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Cited by:
  1. Erdem Basci & Ismail Saglam, 2009. "Sticky Rents and the Stability of Housing Cycles," Working Papers 0902, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

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