What goes up, must come down. Speculation-encouraging institutions and house price cycles across countries

Since the Global Financial Crisis, there is a growing literature on the Comparative Political Economy (CPE) of housing, but it has not systematically incorporated boom-bust cycles in house prices. This matters as cycles in house prices are large relative to their trend and the intensity of house price cycles differs across countries. Bringing Minskyan and behavioural theories of endogenous financial cycles to CPE, this paper argues that the intensity of house price booms and busts is shaped by institutions that encourage speculative behaviour. In an empirical analysis for 23 OECD countries, the paper explores the role of speculation-encouraging institutions, credit permissiveness, welfare state regimes and macroeconomic policy as potential factors. We find that low capital gains taxes and strong landlord-protection policies that may push households onto the property ladder are linked to more intense house price booms and busts.