Diana Kasparova Policy Studies Institute United Kingdom ENHR 2006 Security of Housing Investment in a European Context Questions Is housing a secure investment and in which circumstances? Does low inflation make it more secure? Should owner-occupation be promoted?
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Policy Studies Institute
ENHR 2006Security of Housing Investment in a European Context
Equilibrium: user costs of housing are equal to rental
Short-run: e.g. expectations grow, UCH decline, house
prices increase, possibility of volatility
Long-run: new equilibrium depends on demand and
Demand and supply elasticities:
1. When: - owner-occupation rate is high
- level of indebtedness is high
- mortgage market is deregulated
Sensitivity of house prices to interest rates is likely to be higher
Relationships between house prices and economies are likely to be
House prices are more likely to be volatile
Housing investments are more likely to be risky.
BUT these may be subdued/strengthened by:
‘real’ economic factors (e.g. unemployment)
housing and tax policies
2. Low inflation per se is unlikely to stabilise house prices and security of housing investments may not necessarily be higher.
3. Stabilisation of house prices is more important at higher owner-occupation rates, although attractiveness of owner-occupation may be greater when house prices are volatile
Source: Owner-occupation rate - from Scanlon and Whitehead (2004), Mulder (2005) and Atterhög (2005), ODPM. House price growth rate – HM Treasury (2003); ECB (2003) as quoted in Doling et.al. (2004); Barker (2004); van den Noord (2006). Inflation - Eurostat.
1 1998; 2 1995; 31972-2001; 41987-2001; 51994-2001; 61988-2001; 71980-2001