Housing Prices Propagation: A Theory of Spatial Interactions

Christophe Bruneel, Guillaume Chapelle, Jean Benoit Eymeoud and Etienne Wasmer

No 19956, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: A puzzle is that price-to-rent ratios in the housing market vary a lot in time and space, even after accounting for differences in local discount rates or rent growth differences. We propose a variant of asset pricing equations for housing markets that include a price gradient in space. It is analogous to the transport equation in physics and generates a new range of solutions consistent with the facts. The rationale for the price gradient in the asset pricing equation is the existence of spatial search frictions for housing. It is supported by the data analysis of a large urban area, Paris region.

JEL-codes: C61 D83 G12 R31 (search for similar items in EconPapers)
Date: 2025-02
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