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Is there club convergence in the European housing markets?

Author

Listed:
  • Fabio Canova
  • Natalia Levenko

Abstract

We analyse real residential property prices and housing affordability in 13 European countries from 1975Q1 to 2023Q4 and find no significant evidence of convergence. Canova’s (2004) procedure fails to detect convergence clubs for the full sample. The Kolmogorov-Smirnov test gives only slight indications of temporary clustering. The increasing heterogeneity in house prices and affordability observed since the 2020s is expected to persist into the 2040s. Population growth and supply-side factors drive the heterogeneity, and recessions amplify house price dispersion but reduce affordability dispersion. Looser borrower-based macroprudential policies are associated with lower dispersion in both house prices and affordability.

Suggested Citation

  • Fabio Canova & Natalia Levenko, 2025. "Is there club convergence in the European housing markets?," Bank of Estonia Working Papers wp2025-02, Bank of Estonia, revised 06 May 2025.
    • Handle: RePEc:eea:boewps:wp2025-02
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    File URL: http://www.bankofestonia.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud//https://haldus.eestipank.ee/sites/default/files/2025-04/wp_2025_02.pdf
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    More about this item

    Keywords

    House prices; housing affordability; convergence; European housing markets; macroprudential policy;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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