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Government-made House Price Bubbles?
Housing bubbles and crashes are catastrophic events for economies, implying enormous destruction of housing wealth, financial default risks, construction unemployment, and business cycle downturns. This paper investigates whether governmental housing policies can affect economies' propensity to build up speculative house price bubbles. Specifically, we focus on the liberalization effects of rent and credit regulation as well as homeownership and austerity policies. Drawing on a long-run time series from 16 countries since 1870, we identify speculative price bubbles through explosive root tests, corroborated by a narrative approach. Estimating logit models, we find that tighter rent and credit controls make bubbles less likely to emerge by dampening price increases, while certain homeownership and tenant subsidies and government austerity increase the likelihood of bubbles. The paper illustrates the logic of rent, credit, homeownership and austerity effects with two case studies.
Lessons from an Aborted Second-generation Rent Control in Catalonia
This study investigates the effects of short-lived rent control regulations introduced in Catalonia in September 2020 and revoked in March 2022. Using the microdata of the largest Spanish housing advertisement portal idealista between January 2017 and May 2022, we analyze the dynamics of prices and supply for dwellings offered for rent and for sale. We also examine separately the rental and sales markets. We find that the introduction of rent control led to a reduction in rents in both controlled and uncontrolled Catalan municipalities, while quantities virtually did not react to it. The selling prices of dwellings remained unchanged, whereas their supply increased substantially. The revocat...
Is There a Bubble in the German Housing Market?
After a period of stagnation that lasted for almost two decades, German house prices began to grow at an accelerated pace since late 2010. Real house prices that even had been declining in 2000-2008 started to climb up steeply from the second half of 2010, followed by a recovery of construction activities. This development raised concerns about the formation of a speculative house price bubble among German policy makers and central bankers. However, empirical evidence of a misalignment of house prices from their fundamentals is mixed.
