Chapter 5: House Prices in Europe

Lars Calmfors, Giancarlo Corsetti, Seppo Honkapohja, John Kay, Willi Leibfritz, Gilles Saint-Paul, Hans-Werner Sinn and Xavier Vives

EEAG Report on the European Economy, 2005, 102-112

Abstract: This chapter considers recent developments of house prices in different European countries. There has been widespread worry that house prices might collapse as happened in Japan, the United Kingdom and the Nordic countries in the early 1990s. The country experiences in the last ten years are far from uniform, with rapid price rises in some countries (for example, Ireland, Spain, the Netherlands and the UK) and only small price increases in other countries (for example, France and Germany). A variety of different economic determinants influence the level of house prices. Houses provide accommodation services, and, being durable assets, investment motives also affect house prices. Analysis of these economic factors suggests that, while current house prices may be overvalued to some extent in some EU countries, there is little evidence of major speculative bubbles in house prices in these countries. In our view, there is no scientific basis for claims that house prices are about to collapse due to a bursting bubble.

Date: 2005
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