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

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  • Dan Andrews

    (OECD)

Abstract

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.

Suggested Citation

  • Dan Andrews, 2010. "Real House Prices in OECD Countries: The Role of Demand Shocks and Structural and Policy Factors," OECD Economics Department Working Papers 831, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:831-en
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    File URL: http://dx.doi.org/10.1787/5km33bqzhbzr-en
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    References listed on IDEAS

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    Cited by:

    1. Theodore Panagiotidis & Panagiotis Printzis, 2016. "On the macroeconomic determinants of the housing market in Greece: a VECM approach," International Economics and Economic Policy, Springer, vol. 13(3), pages 387-409, July.
    2. European Commission, 2012. "Tax reforms in EU Member States - Tax policy challenges for economic growth and fiscal sustainability – 2012 Report," Taxation Papers 34, Directorate General Taxation and Customs Union, European Commission.
    3. Robert Kelly & Kieran McQuinn, 2014. "On the Hook for Impaired Bank Lending: Do Sovereign-Bank Interlinkages Affect the Net Cost of a Fiscal Stimulus?," International Journal of Central Banking, International Journal of Central Banking, vol. 10(3), pages 95-128, September.
    4. European Commission, 2013. "Tax reforms in EU Member States - Tax policy challenges for economic growth and fiscal sustainability – 2013 Report," Taxation Papers 38, Directorate General Taxation and Customs Union, European Commission.
    5. Wieser, Robert, 2012. "Stabilising and Destabilising Factors in 14 EU Housing Markets," MPRA Paper 65823, University Library of Munich, Germany.
    6. Mariona Segú & Benjamin Vignolles, 2016. "Taxing Vacant Apartments: Can fiscal policy reduce vacancy?," Working Papers 2016.02, International Network for Economic Research - INFER.
    7. European Commission, 2011. "Tax Reforms in EU Member States 2011: tax policy challenges for economic growth and fiscal sustainability," Taxation Papers 28, Directorate General Taxation and Customs Union, European Commission.
    8. Antje Hildebrandt & Duy T. Huynh-Olesen & Katharina Steiner & Karin Wagner, 2013. "Residential Property Prices in Central, Eastern and Southeastern European Countries," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 52-76.
    9. Julie Fry, 2014. "Migration and Macroeconomic Performance in New Zealand: Theory and Evidence," Treasury Working Paper Series 14/10, New Zealand Treasury.
    10. Caroline Dewilde, 2011. "GINI DP 18: The interplay between economic inequality trends and housing regime changes in advanced welfare democracies," GINI Discussion Papers 18, AIAS, Amsterdam Institute for Advanced Labour Studies.
    11. Krzysztof Olszewski & Robert Leszczyński, 2013. "Panel analysis of home prices in the primary and secondary market in 17 largest cities in Poland," Chapters from NBP Conference Publications, Narodowy Bank Polski, Economic Research Department.
    12. Kelly, Robert & McQuinn, Kieran, 2013. "On the hook for impaired bank lending: Do sovereign-bank inter-linkages affect the fiscal multiplier?," Research Technical Papers 01/RT/13, Central Bank of Ireland.
    13. Aida Caldera Sánchez & Oliver Röhn, 2016. "How do policies influence GDP tail risks?," OECD Economics Department Working Papers 1339, OECD Publishing.
    14. Benjamin Dachis, 2012. "Stuck in Place: The Effect of Land Transfer Taxes on Housing Transactions," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 364, October.
    15. V. Baugnet & P. Butzen & S. Cheliout & W. Melyn & Q. Wibaut, 2011. "End of the crisis in the housing markets ? An international survey," Economic Review, National Bank of Belgium, issue i, pages 53-71, June.
    16. McQuinn, Kieran, 2014. "Bubble, Bubble Toil and Trouble? An Assessment of the Current State of the Irish Housing Market," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI).
    17. Judith Yates, 2011. "Housing in Australia in the 2000s: On the Agenda Too Late?," RBA Annual Conference Volume,in: Hugo Gerard & Jonathan Kearns (ed.), The Australian Economy in the 2000s Reserve Bank of Australia.
    18. repec:onb:oenbwp:y:2013:i:2:b:1 is not listed on IDEAS
    19. Luc Eyraud, 2014. "Reforming Capital Taxation in Italy," IMF Working Papers 14/6, International Monetary Fund.
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    More about this item

    Keywords

    financial regulation; fiscalité; house prices; housing market; marché des logements; marchés hypothécaires; mortgage markets; prix des logements; réglementation financière; taxation;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • 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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