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  4. March 2024
  5. Interest Rates and the Spatial Polarization of Housing Markets

American Economic Review: Insights

ISSN 2640-205X (Print) | ISSN 2640-2068 (Online)

Interest Rates and the Spatial Polarization of Housing Markets

  • Francisco Amaral
  • Martin Dohmen
  • Sebastian Kohl
  • Moritz Schularick
American Economic Review: Insights
vol. 6, no. 1, March 2024
(pp. 89–104)
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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.

Citation

Amaral, Francisco, Martin Dohmen, Sebastian Kohl, and Moritz Schularick. 2024. "Interest Rates and the Spatial Polarization of Housing Markets." American Economic Review: Insights, 6 (1): 89–104. DOI: 10.1257/aeri.20220367

Additional Materials

JEL Classification

  • E43 Interest Rates: Determination, Term Structure, and Effects
  • R21 Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand
  • R31 Housing Supply and Markets