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Drivers of European housing prices in the new millennium: demand, financial, and supply determinants

Author

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  • Ales Melecky

    (VSB-Technical University of Ostrava)

  • Daniel Paksi

    (VSB-Technical University of Ostrava)

Abstract

Many countries in Europe have experienced a steady increase in housing prices over the past decade, which continued even during the recent crisis. We analyze a panel of 15 European countries over the period 2000–2020. We find that demand-side determinants, such as GDP, unemployment, wage and population, strongly influence housing prices. Nevertheless, we suggest that construction costs, access to finance (credit to GDP), and financing costs (long-term interest rate) should be included to avoid biased results. We find that financial development can significantly affect housing prices in the long run. We confirm the robustness of our results by conducting a lag sensitivity analysis of selected determinants. In addition, we find a negative effect of the GFC and a positive effect of the Covid crisis on housing prices. Furthermore, we find that countries with a mild reaction to or a quick recovery from the GFC experienced significantly higher housing price growth.

Suggested Citation

  • Ales Melecky & Daniel Paksi, 2024. "Drivers of European housing prices in the new millennium: demand, financial, and supply determinants," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 51(3), pages 731-753, August.
    • Handle: RePEc:kap:empiri:v:51:y:2024:i:3:d:10.1007_s10663-024-09611-5
    DOI: 10.1007/s10663-024-09611-5
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    More about this item

    Keywords

    Housing price determinants; EU; Euro area; Housing prices; Panel data;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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