Journal Article
Interest rates and the spatial polarization of housing markets
American Economic Review: Insights, 6 (1): 89–104
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Publication Date
DOI
JEL Classification
G10
G12
G51
R30
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Related Topics
Monetary Policy
Economic & Financial Crises
Rising within-country differences in house values are a much debated trend in the U.S. and internationally. Using new long-run regional data for 15 advanced economies, we first 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 then 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.
