Why have house prices risen so much more than rents in superstar cities?

Christian Hilber and Andreas Mense

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: In most countries – particularly in supply constrained superstar cities – house prices have risen much more strongly than rents over the last two decades. We provide an explanation that does not rely on falling interest rates, changing credit conditions, unrealistic expectations, rising inequality, or global investor demand. Our model distinguishes between short- and long-run supply constraints and assumes housing demand shocks exhibit serial correlation. Employing panel data for England, our instrumental variable-fixed effect estimates suggest that in Greater London labor demand shocks in conjunction with supply constraints explain two-thirds of the 153% increase in the price-to-rent ratio between 1997 and 2018.

Keywords: house prices; housing rents; price-to-rent ratio; price and rent dynamics; housing supply; land use regulation (search for similar items in EconPapers)
JEL-codes: G12 R11 R21 R31 R52 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2021-01-15
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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http://eprints.lse.ac.uk/114283/ Open access version. (application/pdf)

Related works:
Working Paper: Why have house prices risen so much more than rents in superstar cities? (2021)
Working Paper: Why have house prices risen so much more than rents in superstar cities? (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:114283

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