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Real House Prices in OECD Countries: The Role of Demand Shocks and Structural and Policy Factors

  • Dan Andrews

This paper analyses the factors influencing the level and volatility of real house prices in a panel of OECD countries over the period 1980-2005. Results suggest that real house prices tend to rise proportionally with real household incomes, while declines in structural unemployment and real interest rates are associated with higher real house prices. The process of mortgage market deregulation has coincided with a noticeable increase in real house prices in OECD countries, while high rates of leverage are found to amplify house price volatility. Estimates suggest that tax reliefs on mortgage debt financing costs tend to be capitalised into real house prices and may also amplify price volatility, reflecting the tendency for such policies to encourage leverage. While higher transaction costs are associated with lower house price volatility, this effect is modest compared to the impact of banking supervision. Indeed, prudential banking supervision and policies designed to contain the excessive build-up of leverage are shown to significantly reduce the extent of house price volatility, underscoring the importance of ongoing efforts to reform prudential frameworks in OECD countries. Prix réels des logements dans les pays de l'OCDE : Le rôle des chocs sur la demande et des facteurs structurels et politiques Ce document analyse les facteurs qui influencent le niveau et la volatilité des prix réels des logements dans un panel de pays de l'OCDE sur la période 1980-2005. Les résultats suggèrent que les prix réels des logements ont tendance à augmenter proportionnellement avec les revenus réels des ménages, alors que les baisses du chômage structurel et de taux d'intérêt réels sont associées à la hausse des prix réels des logements. Le processus de déréglementation du marché hypothécaire a coïncidé avec une hausse notable des prix réels des logements dans les pays de l'OCDE, tandis que les taux d'endettement élevés ont amplifié la volatilité des prix. Les estimations suggèrent que les allégements fiscaux sur les coûts de la dette hypothécaire de financement ont tendance à être capitalisées dans les prix réels des logements et peuvent amplifier la volatilité des prix, reflétant la tendance de ces politiques à encourager un effet de levier. Bien que les coûts de transaction plus élevés se sont associés à la volatilité des prix, cet effet est modeste par rapport à l'impact de la supervision bancaire. En effet, un contrôle prudentiel des banques et des politiques visant à contenir l'accumulation excessive de l'effet de levier réduisent d'une façon significative la volatilité des prix des logements, ce qui souligne l'importance des efforts en cours pour réformer les structures prudentielles dans les pays de l'OCDE.

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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 831.

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Date of creation: 13 Dec 2010
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Handle: RePEc:oec:ecoaaa:831-en
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  1. Hawtrey, Kim & Liang, Hanyu, 2008. "Bank interest margins in OECD countries," The North American Journal of Economics and Finance, Elsevier, vol. 19(3), pages 249-260, December.
  2. Jean Imbs & Giovanni Favara, 2011. "Credit Supply and the Price of Housing," 2011 Meeting Papers 1342, Society for Economic Dynamics.
  3. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
  4. Meen, Geoffrey, 2002. "The Time-Series Behavior of House Prices: A Transatlantic Divide?," Journal of Housing Economics, Elsevier, vol. 11(1), pages 1-23, March.
  5. Luci Ellis, 2010. "The Housing Meltdown: Why Did It Happen in the United States?," International Real Estate Review, Asian Real Estate Society, vol. 13(3), pages 351-394.
  6. Paul van den Noord, 2005. "Tax Incentives and House Price Volatility in the Euro Area: Theory and Evidence," Economie Internationale, CEPII research center, issue 101, pages 29-45.
  7. Libertad Gonzalez & Francesc Ortega, 2009. "Immigration and Housing Booms: Evidence from Spain," CReAM Discussion Paper Series 0919, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  8. Enrica Detragiache & Abdul Abiad & Thierry Tressel, 2008. "A New Database of Financial Reforms," IMF Working Papers 08/266, International Monetary Fund.
  9. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc.
  10. Calvin Schnure, 2005. "Boom-Bust Cycles in Housing; The Changing Role of Financial Structure," IMF Working Papers 05/200, International Monetary Fund.
  11. Patric H. Hendershott & Dr. Gwilyn Pryce & Dr. Michael White, 2002. "Household Leverage and the Deductibility of Home Mortgage Interest: Evidence from UK House Purchasers," NBER Working Papers 9207, National Bureau of Economic Research, Inc.
  12. Aida Caldera Sánchez & Dan Andrews, 2011. "To Move or not to Move: What Drives Residential Mobility Rates in the OECD?," OECD Economics Department Working Papers 846, OECD Publishing.
  13. Dan Andrews & Aida Caldera Sánchez, 2011. "Drivers of Homeownership Rates in Selected OECD Countries," OECD Economics Department Working Papers 849, OECD Publishing.
  14. Pietro Catte & Nathalie Girouard & Robert W.R. Price & Christophe André, 2004. "Housing Markets, Wealth and the Business Cycle," OECD Economics Department Working Papers 394, OECD Publishing.
  15. Kathrin Degen & Andreas M. Fischer, 2010. "Immigration and Swiss House Prices," Working Papers 2010-16, Swiss National Bank.
  16. Poterba, James M, 1984. "Tax Subsidies to Owner-occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 729-52, November.
  17. Peter Abelson & Roselyne Joyeux & George Milunovich & Demi Chung, 2005. "Explaining House Prices in Australia: 1970-2003," The Economic Record, The Economic Society of Australia, vol. 81(s1), pages S96-S103, 08.
  18. Alain de Serres & Shuji Kobayakawa & Torsten Sløk & Laura Vartia, 2006. "Regulation of Financial Systems and Economic Growth," OECD Economics Department Working Papers 506, OECD Publishing.
  19. Joseph Gyourko, 2009. "Housing Supply," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 295-318, 05.
  20. Luci Ellis & Dan Andrews, 2001. "City Sizes, Housing Costs, and Wealth," RBA Research Discussion Papers rdp2001-08, Reserve Bank of Australia.
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