East, west, boom and bust: the spread of house prices and rents in Ireland, 2007-2012

As the Global Financial Crisis has shown, housing market bubbles can have widespread economic consequences. Housing submarkets matter but economic theory is divided on how the spread of prices between low- and high-value segments varies with the market cycle and few studies examine the issue. This paper addresses that gap, using a detailed data-set of over one million property listings for Ireland from 2006 to 2012. Using hedonic methods, controlling for time and attributes, standardised prices for over 1100 sales zones and 300 lettings zones are calculated and then compared for mid-2007 and mid-2012. There are four key findings. Although, firstly, the spread of prices across different property sizes increased significantly between bubble and crash, the spread of rents, secondly, fell. There was, thirdly, at most a small fall in the spread of both prices and rents across space. Lastly, in both periods, the spread of rents was constrained relative to that of prices, particularly in the upper tail. The evidence from Ireland indicates that the relative gap between low- and high-value segments grew in the crash. This is important for macro-prudential policy. There are also local implications, as Ireland deals with legacy supply issues, predominantly in low-value segments.