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On Roots of Housing Bubbles

Author

Listed:
  • Erdem Basci
  • Ismail Saglam

Abstract

This paper is about instability of equilibrium real rents in a pure exchange economy. Our main result hinges upon a low degree of substitutability between housing services and other commodities together with a low share of owner-occupied houses. We argue that regions or economies with a low share of owner-occupied houses are more prone to housing bubbles that are driven by locally unstable rent dynamics.

Suggested Citation

  • Erdem Basci & Ismail Saglam, 2008. "On Roots of Housing Bubbles," Working Papers 0803, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:0803
    as

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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2008/08-03
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    References listed on IDEAS

    as
    1. Margaret Hwang Smith & Gary Smith, 2006. "Bubble, Bubble, Where's the Housing Bubble?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(1), pages 1-68.
    2. Campbell, John Y. & Cocco, Joao F., 2007. "How do house prices affect consumption? Evidence from micro data," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 591-621, April.
    3. Piazzesi, Monika & Schneider, Martin & Tuzel, Selale, 2007. "Housing, consumption and asset pricing," Journal of Financial Economics, Elsevier, vol. 83(3), pages 531-569, March.
    4. Angela Black & Patricia Fraser & Martin Hoesli, 2006. "House Prices, Fundamentals and Bubbles," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(9‐10), pages 1535-1555, November.
    5. Shiller, Robert J, 1990. "Speculative Prices and Popular Models," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 55-65, Spring.
    6. Ogaki, Masao & Reinhart, Carmen M., 1998. "Intertemporal substitution and durable goods: long-run data," Economics Letters, Elsevier, vol. 61(1), pages 85-90, October.
    7. Kenny, Geoff, 1999. "Modelling the demand and supply sides of the housing market: evidence from Ireland1," Economic Modelling, Elsevier, vol. 16(3), pages 389-409, August.
    8. Daniel Kahneman & Jack L. Knetsch & Richard H. Thaler, 1991. "Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 193-206, Winter.
    9. Angela Black & Patricia Fraser & Martin Hoesli, 2006. "House Prices, Fundamentals and Bubbles," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(9‐10), pages 1535-1555, November.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Erdem Basci & Ismail Saglam, 2009. "Sticky Rents and the Stability of Housing Cycles," Working Papers 0902, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

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    More about this item

    Keywords

    Housing bubbles; rents; stability of equilibrium; CES utility; Leontief utility;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • 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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