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

Hilber, Christian A. L. and Mense, Andreas (2021) Why have house prices risen so much more than rents in superstar cities? Geography and Environment Discussion Paper Series (30). Department of Geography and Environment, LSE, London, UK.

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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.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://www.lse.ac.uk/geography-and-environment/res...
Additional Information:	© 2021 The Authors
Divisions:	Geography & Environment
Subjects:	H Social Sciences > HC Economic History and Conditions T Technology > T Technology (General)
JEL classification:	G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, and Changes R - Urban, Rural, and Regional Economics > R2 - Household Analysis > R21 - Housing Demand R - Urban, Rural, and Regional Economics > R3 - Production Analysis and Firm Location > R31 - Housing Supply and Markets R - Urban, Rural, and Regional Economics > R5 - Regional Government Analysis > R52 - Land Use and Other Regulations
Date Deposited:	16 Nov 2021 14:48
Last Modified:	15 Sep 2023 23:54
URI:	http://eprints.lse.ac.uk/id/eprint/112668

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