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Booms and Busts in the UK Housing Market

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  • Muellbauer, John
  • Murphy, Anthony

Abstract

The often volatile behavior of U.K. house prices between 1957 and 1994 is analyzed in an annual econometric model. Theory suggests that financial liberalization of mortgage markets in the 1980s should have led to notable shifts in house price behavior. The evidence supports the predictions of theory, suggesting shifts took place in wealth effects, as in the consumption function, and that real interest rates and income expectations became more important. The presence of transactions costs suggests important nonlinearities in house price dynamics. The paper also contains an explicit econometric treatment of expectations, demography, supply spillovers from the rented sector, and of composition biases in the official house price index. Copyright 1997 by Royal Economic Society.

Suggested Citation

  • Muellbauer, John & Murphy, Anthony, 1997. "Booms and Busts in the UK Housing Market," Economic Journal, Royal Economic Society, vol. 107(445), pages 1701-1727, November.
    • Handle: RePEc:ecj:econjl:v:107:y:1997:i:445:p:1701-27
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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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