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On the long-run solution to aggregate housing systems

Author

Listed:
  • Geoffrey Meen

    (University of Reading, UK)

  • Alexander Mihailov

    (University of Reading, UK)

  • Yehui Wang

    (Shandong University of Finance and Economics, China)

Abstract

This paper explores the properties of dynamic aggregate housing models. In conventional models, in response to demand shocks the primary adjustment mechanism is through prices and changes in housing supply. However, the size of the supply response depends on the price elasticity of supply and in countries such as the UK where the elasticity is low, house prices can rise sharply, worsening affordability. But this ignores the roles of housing risk and credit markets which affect the user cost of capital and the paper demonstrates that models that explicitly introduce a housing risk premium have an additional price stabiliser. The importance is shown through stochastic simulations; these simulations also demonstrate that conventional models used for forecasting and policy analysis may overstate future house price growth.

Suggested Citation

  • Geoffrey Meen & Alexander Mihailov & Yehui Wang, 2022. "On the long-run solution to aggregate housing systems," Urban Studies, Urban Studies Journal Limited, vol. 59(1), pages 178-196, January.
    • Handle: RePEc:sae:urbstu:v:59:y:2022:i:1:p:178-196
    DOI: 10.1177/0042098020976019
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    References listed on IDEAS

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    1. Tankut Atuk & Susan L Craddock, 2023. "Social pathologies and urban pathogenicity: Moving towards better pandemic futures," Urban Studies, Urban Studies Journal Limited, vol. 60(9), pages 1668-1689, July.

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