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Free keywords:
House prices; regional housing markets; spatial polarization
Abstract:
Rising within-country differences in house values are a 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.
