Interest Rates and the Spatial Polarization of Housing Markets

Francisco Amaral (), Martin Dohmen, Sebastian Kohl and Moritz Schularick ()
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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

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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.

Date: 2024-03-01
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Published in American Economic Review: Insights, 2024, American Economic Review: Insights, 6 (1), pp.89-104. ⟨10.1257/aeri.20220367⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:spmain:hal-05448521

DOI: 10.1257/aeri.20220367

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