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Interest Rates and the Spatial Polarization of Housing Markets

Author

Listed:
  • Francisco Amaral

    (Universität Bonn = University of Bonn)

  • Martin Dohmen

    (Universität Bonn = University of Bonn)

  • Sebastian Kohl

    (Freie Universität Berlin = Free University of Berlin)

  • Moritz Schularick

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, Kiel Institute for the World Economy - Kiel Institute for the World Economy)

Abstract

Rising within-country differences in house values are a much-debated trend in the United States and internationally. Using new long-run regional data for 15 advanced economies, we show that standard explanations linking growing price dispersion to rent dispersion are contradicted by an important stylized fact: rent dispersion has increased far less than price dispersion. We propose a new explanation: a uniform decline in real risk-free interest rates can have heterogeneous spatial effects on house values. Falling real safe rates disproportionately push up prices in large agglomerations where initial rent-price ratios are low, leading to housing market polarization on the national level.

Suggested Citation

  • Francisco Amaral & Martin Dohmen & Sebastian Kohl & Moritz Schularick, 2024. "Interest Rates and the Spatial Polarization of Housing Markets," Post-Print hal-05448521, HAL.
    • Handle: RePEc:hal:journl:hal-05448521
    DOI: 10.1257/aeri.20220367
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-05448521v1
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    Cited by:

    1. Katja Gehr & Linus Kraft & Michael Pflüger, 2026. "Housing in Big Cities: The Capitalization Premium," CESifo Working Paper Series 12430, CESifo.
    2. Zhandos Ybrayev & Yernur Orakbayev & Askar Utarbayev, 2024. "Yield Curves for Main Street: Housing and financial capital returns in a developing economy," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(1), pages 165-182, January.
    3. Francisco Amaral & Martin Dohmen & Sebastian Kohl & Moritz Schularick, 2025. "Superstar Returns? Spatial Heterogeneity in Returns to Housing," Journal of Finance, American Finance Association, vol. 80(5), pages 3057-3094, October.
    4. Paz-Pardo, Gonzalo & Castellanos, Juan & Hannon, Andrew, 2024. "The aggregate and distributional implications of credit shocks on housing and rental markets," Working Paper Series 2977, European Central Bank.
    5. Tarne, Ruben & Bezemer, Dirk, 2025. "Roof or real estate? An agent-based model of housing affordability in The Netherlands," Structural Change and Economic Dynamics, Elsevier, vol. 72(C), pages 163-178.

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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • 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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