Externalities and Housing Price in Spain: 1994-2003

"Economic accessibility of housing is becoming a real problem in Spain due to the so-called ""realstate boom"". The increase of price affects the Spanish economy especially since 1998. That is why the research in housing prices is increasing in this country. In this paper, we analyze in depth housing price dynamics in the Spanish provinces to test for the existence of convergence or divergence processes, as well as the presence of spatial externalities or spillovers. We use some exploratory spatial data analysis tools and spatial econometrics to control for spatial autocorrelation and spatial heterogeneity in the error terms of the regression. We demonstrate that there was a divergence trend in housing price growth during the last decade between Spanish provinces. We also state that housing price growth in a province is affected by housing price growth in its corresponding neighboring provinces, not only physically contiguous but also those belonging to the same region. Specifically, the own region impact over housing price growth is higher that the pure geographic contiguity. This fact has important conclusions in terms of housing policy, as it demonstrate the power of regional policies on housing price growth, even more that the effect of neighboring provinces of other regions. "