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Apartment House Prices and the Macroeconomy: Theoretical Analysis and Empirical Evidence

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  • Oliver Holtemoller
  • Rainer Schulz

Abstract

We study the impact of macroeconomic factors on apartment house prices. A simple version of the so-called new IS/LM model is used to analyze the interaction of macroeconomic variables and prices. It is assumed that prices follow the rational valuation formula (RVF), which states that prices correspond to the sum of discounted expected future cash flows. The model allows for time-varying discount factors, tax effects and systematic interdependence between macroeconomic factors. We construct a price-rent ratio for apartment houses in Berlin from transaction data between 1980 and 2000. It turns out that the rational valuation formula can explain the dynamics of price-rent ratios for apartment houses quite well. We then compare the stylised facts generated by the structural model with the observed empirical time series behavior.
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Suggested Citation

  • Oliver Holtemoller & Rainer Schulz, 2000. "Apartment House Prices and the Macroeconomy: Theoretical Analysis and Empirical Evidence," Regional and Urban Modeling 283600036, EcoMod.
    • Handle: RePEc:ekd:002836:283600036
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    References listed on IDEAS

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    1. Patric Hendershott & Robert Hendershott & Bryan MacGregor, 2006. "Evidence on Rationality in Commercial Property Markets: An Interpretation and Critique," Journal of Real Estate Literature, Taylor & Francis Journals, vol. 14(2), pages 147-172, January.
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    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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