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On the long-run solution to aggregate housing systems

Meen, G., Mihailov, A. ORCID: https://orcid.org/0000-0003-4307-4029 and Wang, Y. (2020) On the long-run solution to aggregate housing systems. Urban Studies. ISSN 1360-063X (In Press)

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To link to this item DOI: 10.1177/0042098020976019

Abstract/Summary

This paper explores the properties of dynamic aggregate housing models. In conventional models, in response to demand shocks, the primary adjustment mechanism is through prices and changes in housing supply. However, the size of the supply response depends on the price elasticity of supply and in countries such as the UK where the elasticity is low, house prices can rise sharply, worsening affordability. But this ignores the roles of housing risk and credit markets which affect the user cost of capital and the paper demonstrates that models that explicitly introduce a housing risk premium have an additional price stabiliser. The importance is shown through stochastic simulations; these simulations also demonstrate that conventional models used for forecasting and policy analysis may overstate future house price growth.

Item Type:Article
Refereed:Yes
Divisions:Faculty of Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
ID Code:93707
Publisher:Sage

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