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What Drives Housing Prices Down? Evidence from an International Panel

Listed author(s):
  • Kholodilin Konstantin A.

    ()

    (DIW Berlin, Mohrenstrasse 58, 10117 Berlin, Germany)

  • Menz Jan-Oliver

    ()

    (University of Hamburg, Department Economics and Politics, Von-Melle-Park 9, 20146, Hamburg, Germany)

  • Siliverstovs Boriss

    ()

    (ETH Zurich, KOF Swiss Economic Institute, Weinbergstrasse 35, 8092 Zurich, Switzerland)

In this study, we suggest an explanation for the low growth rates of real housing prices in Canada and Germany in comparison to other OECD countries over the period 1975-2005. We show that the long-run development of housing markets is determined by real disposable per-capita income, the real long-term interest rate, population growth, and urbanization. The differential development of real housing prices in Canada and Germany is attributed to the fundamentals in these two countries. Canada and Germany are characterized by relatively low average growth rates of real disposable income and relatively high interest rates, resulting in depressed housing prices over a long period of time. Institutional structure accentuates these tendencies. Given the importance of housing wealth for private consumption, our paper aims at drawing the attention of policymakers to the necessity of preventing not only overheating but also overcooling of the housing market that entails lower economic growth rate.

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Article provided by De Gruyter in its journal Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik).

Volume (Year): 230 (2010)
Issue (Month): 1 (February)
Pages: 59-76

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Handle: RePEc:jns:jbstat:v:230:y:2010:i:1:p:59-76
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