IDEAS home Printed from https://ideas.repec.org/a/kap/jrefec/v32y2006i4p449-470.html
   My bibliography  Save this article

A Cross-Section Analysis of the Income Elasticity of Housing Demand in Spain: Is There a Real Estate Bubble?

Author

Listed:
  • Daniel Fernández-Kranz

    ()

  • Mark Hon

    ()

Abstract

Much attention has been given to claims that real estate prices in Spain are overvalued in relation to income and how plummeting house prices can jeopardize the economy (The Economist, 2003 and IMF, 2004). The measure of income elasticity on housing expenditure is often of considerable interest to applied researchers and policy makers in real estate economics, but the problem of omitted variables in some estimation techniques can lead to severe biases. In this paper we estimate the income elasticity of the demand for housing in Spain based on the cross-section of prices and income in fifty Spanish provinces from 1996 to 2002. In comparison to long-run equilibrium models fitted with time-series data, our results show a much weaker role of income growth as a vehicle for house price increases in the long run. According to our estimates, the rate of growth of house prices in Spain between 1998 and 2003 points to a real estate bubble with prices above the long-term equilibrium level. Copyright Springer Science + Business Media, LLC 2006

Suggested Citation

  • Daniel Fernández-Kranz & Mark Hon, 2006. "A Cross-Section Analysis of the Income Elasticity of Housing Demand in Spain: Is There a Real Estate Bubble?," The Journal of Real Estate Finance and Economics, Springer, vol. 32(4), pages 449-470, June.
  • Handle: RePEc:kap:jrefec:v:32:y:2006:i:4:p:449-470
    DOI: 10.1007/s11146-006-6962-9
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11146-006-6962-9
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Juan Ayuso & Fernando Restoy, 2003. "House prices and rents: an equilibrium asset pricing approach," Working Papers 0304, Banco de España;Working Papers Homepage.
    2. Arcelus, Francisco & Meltzer, Allan H, 1973. "The Markets for Housing and Housing Services," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 5(1), pages 78-99, Part I Fe.
    3. Arcelus, Francisco & Meltzer, Allan H, 1973. "The Markets for Housing and Housing Services: Reply," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 5(4), pages 973-978, November.
    4. Lopez, Carmen & Aguayo, Eva & Exposito, Pilar, 1998. "El comportamiento de los precios de la vivienda en las regiones españolas: principales determinantes," Economic Development 34, University of Santiago de Compostela. Faculty of Economics and Business. Econometrics..
    5. Goodman, Allen C. & Kawai, Masahiro, 1982. "Permanent income, hedonic prices, and demand for housing: New evidence," Journal of Urban Economics, Elsevier, vol. 12(2), pages 214-237, September.
    6. Wilkinson, R K, 1973. "The Income Elasticity of Demand for Housing," Oxford Economic Papers, Oxford University Press, vol. 25(3), pages 361-377, November.
    7. Goodman, Allen C. & Kawai, Masahiro, 1986. "Functional form, sample selection, and housing demand," Journal of Urban Economics, Elsevier, vol. 20(2), pages 155-167, September.
    8. Mayo, Stephen K., 1981. "Theory and estimation in the economics of housing demand," Journal of Urban Economics, Elsevier, vol. 10(1), pages 95-116, July.
    9. Justo Manrique & Kalu Ojah, 2003. "The demand for housing in Spain: an endogenous switching regression analysis," Applied Economics, Taylor & Francis Journals, vol. 35(3), pages 323-336.
    10. Hansen, Julia L. & Formby, John P. & Smith, W. James, 1996. "The Income Elasticity of Demand for Housing: Evidence from Concentration Curves," Journal of Urban Economics, Elsevier, vol. 39(2), pages 173-192, March.
    11. Kim, Kyung-Hwan & Suh, Seoung Hwan, 1993. "Speculation and Price Bubbles in the Korean and Japanese Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 6(1), pages 73-87, January.
    12. Polinsky, A Mitchell, 1977. "The Demand for Housing: A Study in Specification and Grouping," Econometrica, Econometric Society, vol. 45(2), pages 447-461, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ali Osman Solak & Burhan Kabadayi, 2016. "Bounds Testing Approaches to Housing Demand in Turkey: Is There a Real Estate Bubble?," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1132-1135.
    2. Arrazola, María & de Hevia, José & Romero, Desiderio & Sanz-Sanz, José Félix, 2014. "Determinants of the Spanish housing market over three decades and three booms: Long run supply and demand elasticities," Working Paper Series 3604, Victoria University of Wellington, Chair in Public Finance.
    3. Belke, Ansgar H. & Gros, Daniel, 2007. "Instability of the Eurozone? On Monetary Policy, House Prices and Labor Market Reforms," IZA Discussion Papers 2547, Institute for the Study of Labor (IZA).
    4. Hui, Eddie C.M. & Zheng, Xian & Wang, Hui, 2010. "A dynamic mathematical test of international property securities bubbles and crashes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(7), pages 1445-1454.
    5. Arghyrou, Michael G. & Gadea, Maria Dolores, 2012. "The single monetary policy and domestic macro-fundamentals: Evidence from Spain," Journal of Policy Modeling, Elsevier, vol. 34(1), pages 16-34.
    6. Bajo-Buenestado, Raúl, 2016. "Evidence of asymmetric behavioral responses to changes in gasoline prices and taxes for different fuel types," Energy Policy, Elsevier, vol. 96(C), pages 119-130.
    7. David Downs & Z. Güner, 2012. "Information Producers and Valuation: Evidence from Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 44(1), pages 167-183, January.
    8. Arghyrou, Michael G. & Gregoriou, Andros & Kontonikas, Alexandros, 2009. "Do real interest rates converge? Evidence from the European union," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(3), pages 447-460, July.
    9. Carlos Rodríguez & Ricardo Bustillo, 2010. "Modelling Foreign Real Estate Investment: The Spanish Case," The Journal of Real Estate Finance and Economics, Springer, vol. 41(3), pages 354-367, October.
    10. Shen, Chung-Hua & Lin, Kun-Li & Guo, Na, 2016. "Hawk or dove: Switching regression model for the monetary policy reaction function in China," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 94-111.
    11. Konstantin A. Kholodilin & Claus Michelsen & Dirk Ulbricht, 2014. "Speculative Price Bubbles in Urban Housing Markets in Germany," Discussion Papers of DIW Berlin 1417, DIW Berlin, German Institute for Economic Research.
    12. Konstantin Kholodilin, 2015. "Speculative Bubbles in Urban Housing Markets in Germany," ERSA conference papers ersa15p67, European Regional Science Association.

    More about this item

    Keywords

    Income elasticity; Cross-section; Housing expenditure; R20; E21;

    JEL classification:

    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jrefec:v:32:y:2006:i:4:p:449-470. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: http://www.springer.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.