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Abstract

The past four decades saw a significant increase in regional housing price disparities in the US and internationally, coinciding with a consistent fall in real interest rates. This column uses a comprehensive international dataset to show that differences in housing prices have risen considerably more than differences in rents. The authors argue that this challenges current theories on the causes of regional housing price inequality, and present evidence of a new mechanism instead: the decrease in real interest rates has disproportionately inflated prices in major cities where the initial rent-to-price ratio is low, leading to a polarised housing market between cities.