Interest Rates and the Spatial Polarization of Housing Markets

Amaral, Francisco; Dohmen, Martin; Kohl, Sebastian; Schularick, Moritz

doi:10.1257/aeri.20220367

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Interest Rates and the Spatial Polarization of Housing Markets

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

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https://doi.org/10.1257/aeri.20220367
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https://www.aeaweb.org/doi/10.1257/aeri.20220367.appx
(Supplementary material)

https://doi.org/10.3886/E183842V1
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Citation

Amaral, F., Dohmen, M., Kohl, S., & Schularick, M. (2024). Interest Rates and the Spatial Polarization of Housing Markets. American Economic Review: Insights, 6(1), 89-104. doi:10.1257/aeri.20220367.

Cite as: https://hdl.handle.net/21.11116/0000-000E-881C-A

Abstract

Rising within-country differences in house values are a much-debated trend in the United States and internationally. Using new long-run regional data for 15 advanced economies, we 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 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.