House Price, House Quality and Economic Growth

House Price, House Quality and Economic Growth

De Vries, P.
Boelhouwer, P.J.

OTB Research Institute

OTB onderzoek

2010-06-01

The literature on housing markets suggest that periods of economic growth are characterised by a demand for better housing quality and increasing prices. The basic principles of the theory are that the short-run price fluctuations occur due to market imperfection, while over the long term, causality with such fundamentals as income will recover. Affordability of the higher quality then becomes a problem in the subsequent period of economic stagnation. This article seeks to identify the mechanism in which quality and affordability are weighed against each other, showing that the price-quality relationship changes with the economic growth. We do this against the background of the Dutch housing market. Our analysis shows that in a high-growth economy households search for better quality of property and are prepared to pay for it. In a stagnant economy the demand for quality takes second place to the demand for affordable homes. It also appears that appreciation of quality varies in particular between the low-growth phase and the medium-growth phase. The price-quality relationship barely varies between the medium-growth and high-growth phases.

house prices
house quality
housing market
economic growth
The Netherlands

http://resolver.tudelft.nl/uuid:b0f7839b-5e55-444b-b758-826f609f05b2

Università Bocconi

European Real Estate Society Conference Conference - ERES 2010, 23-26 June 2010, Milan, Italy

Institutional Repository

conference paper

(c) 2010 Delft University of Technology