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Interest Rates and the Spatial Polarization of Housing Markets

MPS-Authors
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Kohl,  Sebastian       
Wirtschaftssoziologie, MPI for the Study of Societies, Max Planck Society;
Free University Berlin, Germany;

External Resource

https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_212_2022.pdf
(Publisher version)

https://hdl.handle.net/21.11116/0000-000E-881C-A
(Supplementary material)

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mpifg_p22_212.pdf
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Citation

Amaral, F., Dohmen, M., Kohl, S., & Schularick, M. (2022). Interest Rates and the Spatial Polarization of Housing Markets. ECONtribute Discussion Paper, 212.


Cite as: https://hdl.handle.net/21.11116/0000-000B-AE85-B
Abstract
Rising within-country differences in house values are much debated trend in the U.S. and internationally. Using new long-run regional data for 15 advanced economies, we first 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 then 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.