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A Tale of Two Cities: Is Overvaluation a Capital Issue?

In: Hot Property

Author

Listed:
  • John Muellbauer

    (Nuffield College
    University of Oxford)

Abstract

Empirical evidence on what drives house prices, such as income changes, extrapolative expectations and differences in supply elasticities, is important. In many countries, house price movements in major cities such as the capital are more extreme and often seem to lead the rest of the country. This chapter therefore proposes a framework for analysing prices at a regional level, with an application to London illustrating its leading role and the ripple effect in other UK regions. As is also shown for Paris, capital cities are more sensitive to interest rates and credit conditions, and international investors can play an important role (perhaps leading to affordability problems for local residents). After the crisis, debt-to-income ratios have risen strongly which, together with the higher interest rate sensitivity of housing in cities, may impede the normalisation of interest rates.

Suggested Citation

  • John Muellbauer, 2019. "A Tale of Two Cities: Is Overvaluation a Capital Issue?," Springer Books, in: Rob Nijskens & Melanie Lohuis & Paul Hilbers & Willem Heeringa (ed.), Hot Property, chapter 0, pages 51-62, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-11674-3_5
    DOI: 10.1007/978-3-030-11674-3_5
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    Cited by:

    1. John Muellbauer, 2023. "Why we need a green land value tax and how to design it," Economics Series Working Papers 1010, University of Oxford, Department of Economics.

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