What drives house prices: Lessons from the literature

Abstract:

Research on house price cycles and their interactions with the economy has burgeoned since the Global Financial Crisis. This column draws five lessons from a recent comprehensive survey. It argues that conventional theories of house price dynamics are misleading. Shifts in credit conditions, together with differences in housing supply response across cities, regions and countries, account for much of the heterogeneity of house price outcomes. Finally, increased demand for space and unprecedented policy interventions together explain the very different house price experience in the pandemic compared with the Global Financial Crisis.