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Apartment price determinants: A comparison between Sweden and Germany
KTH, School of Architecture and the Built Environment (ABE), Real Estate and Construction Management.
2015 (English)Licentiate thesis, comprehensive summary (Other academic)
Abstract [en]

Similar development of economic fundamentals in Germany over the last two decades did not lead to the same dramatic house price increases as it is in Sweden. What can explain this house price stability over a long period? This thesis attempts to find the answer this question.

The first paper in this thesis contains an extended literature review on the studies focused on the factors affecting house prices in the short and in the long run. Existing literature adopts a broad variation of approaches and reaches different conclusions attempting to answer the question about what are the key drivers of house prices. Conclusions often depend on the model specifications and econometric methods applied. Though there is a considerable agreement in real estate economics theory regarding the main factors that affect house prices (or so called “fundamental determinants”), it is hard to find a consistent definition regarding what factors can be considered as “fundamentals” and what factors belong to “non-fundamentals”. The dominating factors that are presented in the majority of the studies are income, population, interest rate, housing stock and unemployment. Studies done after the recent financial crisis put more attention on such factors as the behavior of the market participants, financing conditions and regulations. The characteristics of the bank lending and valuation policies as well as regulations on the rental market have received attention in the research literature, but the impact of these factors on house price dynamics is not measured and not well described. Therefore the other two papers in this thesis aim to provide a better insight in to the factors that create fluctuations in housing markets.

The second paper investigates the effects of macroeconomic indicators such as population, income housing stock, mortgage interest rate on house prices. Estimation is done by applying panel data methodology on regional data for major cities in Germany and Sweden and by using yearly observations from 1995 to 2010. Results suggest that the long-run development of apartment prices in Sweden can be explained by changes in such factors as population, disposable income per capita, mortgage interest rate, housing stock, and prices per square meter in the previous period. The price for the previous period has the highest impact in comparison with other factors in Sweden. At the same time for Germany this is the only factor that is valid for long-term house price development. Estimates for fundamental factors such as population, disposable income, mortgage interest rate and housing stock appeared as not significant in house price development in the long run in Germany. A closer analysis has shown that the fundamental factors developed in a similar way in both countries during the analyzed period, though the house prices dynamic is very different. The conclusion is that fundamental factors cannot provide an explanation for the differences in house price developments in two countries and further analysis of institutional differences in the housing markets is done in the third paper.

Third paper applies a comparative analysis approach and hypothetico-deductive method in order to examine the differences in the banking policies on mortgage financing and approaches to valuation of mortgage properties in Germany and Sweden.  The results suggest that the extreme rise in Swedish house prices above the long-term trend was created by expanding bank lending policies that was supported by the general macroeconomic factors and regulation environment on the housing market. The main difference between countries in approaches to valuation for mortgage purposes is that in Germany that mortgage is based not on the market value as it is in Sweden, but on the long-run sustainable value, so called “fundamental” value. Mortgage lending value is determined in such a way that is also develops in the same tempo as fundamentals in the long-run and is not that procyclical as market value. Using a long-term sustainable value has a restrictive effect on the housing prices and in such a way stabilizes the market.  One more factor that gives stability to the housing market in Germany is the well-functioning rental market. Third paper contributes to a better understanding of necessary conditions for the house prices to rise in the long run above the fundamentals level and suggests policy solutions that can reduce the risks of housing bubbles and increase financial stability.

Abstract [sv]

Ekonomiska fundamenta hur utvecklats på ungefär samma sätt i Tyskland och Sverige, men medan huspriserna i Sverige stigit kraftigt har de varit stabila i Tyskland. Vad kan förklara denna skillnad? Syftet med denna licentiatuppsats är att försöka förklara det.

Den första uppsatsen innehåller en omfattande litteraturöversikt rörande vad som styr huspriser på kort och lång sikt. Den existerande litteraturen innehåller många olika angreppssätt och kommer till olika svar om vad som driver huspriserna. Slutsatserna beror ofta på hur modellerna specificerats och vilken ekonometrisk metod som använts. Det finns dock betydande enighet i ekonomisk teori om vad som är de grundläggande faktorerna som styr huspriserna (så kallade fundamenta) så finns delade meningar om hur dessa exakt ska specificeras och vad som räknas som icke-fundamentala faktorer. De vanligaste fundamentala faktorerna i studierna är inkomst, befolkning, räntenivå, bostadsutbudet och arbetslöshet. Studier gjorda efter den senaste finanskrisen betonar med beteendefaktorer, finansieringsförhållande och regleringar. Egenskaperna hos bankernas långivning och värderingsprinciper liksom effekten av hur hyresmarknaden fungerar har då fått lite utrymme vilket motiverar att de behandlas mer ingående i denna studie.

Den andra uppsatsen undersöker effekterna av makroekonomiska indikatorer som befolkning, inkomst, bostadsutbud och räntenivåer på huspriser i Tyskland och Sverige. Studien begränsas till ett antal större städer och bygger på data från 1995-2010. Paneldataanalys används. Resultaten pekar på att den långsiktiga prisutvecklingen i Sverige kan förklaras av sådana fundamentala faktorer, men också att priset föregående period påverkar priset perioden efter. För Tyskland är enbart den sista faktorn av betydelse, dvs utvecklingen av de fundamentala faktorerna påverkar inte prisutvecklingen där. Trots att de fundamentala faktorerna utvecklas på liknande sätt så leder de inte till samma utveckling av huspriserna. Detta motiverar djupare studier av institutionella skillnader mellan bostadsmarknaderna i de båda länderna.

Den tredje uppsatsen är en jämförande studie som använder hypotetiskt deduktiv metod för att undersöka om skillnader i bankerna lånepolicy och skillnader i värdebegrepp kan förklara skillnader i prisutveckling på bostäder. Resultaten pekar på att de snabbt stigande priserna i Sverige kan förklaras med en expansiv långivning. En viktig skillnad är att medan långivning i Sverige grundas på aktuellt marknadsvärde medan den i Tyskland bygger på ett långsiktigt värde som ska spegla långsiktiga fundamentala faktorer, ett så kallat "mortgage lending value". Detta värde utvecklas mer sakta och ska inte svänga med konjunkturerna på det sätt som ett marknadsvärde normalt gör. Genom att långivning grundas på detta värde stabiliseras marknaden. En annan faktor som bidrar till att stabilisera de tyska bostadspriserna är att det finns en fungerande hyresmarknad som skapar ett alternativ till att köpa. Bidraget i den tredje uppsatsen är att öka vår förståelse av nödvändiga villkor för att huspriserna inte ska stiga snabbt och att den pekar på åtgärder som kan minska risken för prisbubblor på bostadsmarknaden, och minska risken för finansiell instabilitet.

Place, publisher, year, edition, pages
Stockholm: KTH Royal Institute of Technology, 2015. , 17 p.
Series
TRITA-FOB-LIC, 2015:2
Keyword [en]
Apartment price determinants, house price determinants, valuation for mortgage purposes, bank lending policies
National Category
Economics
Research subject
Economics; Real Estate and Construction Management
Identifiers
URN: urn:nbn:se:kth:diva-161652ISBN: 978-91-85783-47-2 (print)OAI: oai:DiVA.org:kth-161652DiVA: diva2:794983
Presentation
2015-03-27, Sal V3, Teknikringen 72, Stockholm, 13:00 (English)
Opponent
Supervisors
Note

QC 20150316

Available from: 2015-03-16 Created: 2015-03-13 Last updated: 2015-03-16Bibliographically approved
List of papers
1. House price dynamics: A literature review
Open this publication in new window or tab >>House price dynamics: A literature review
(English)Manuscript (preprint) (Other academic)
National Category
Economics
Identifiers
urn:nbn:se:kth:diva-161739 (URN)
Note

QS 2015

Available from: 2015-03-16 Created: 2015-03-16 Last updated: 2015-03-16Bibliographically approved
2. House price determinants: A comparison between major cities in Germany and Sweden
Open this publication in new window or tab >>House price determinants: A comparison between major cities in Germany and Sweden
(English)Manuscript (preprint) (Other academic)
National Category
Economics
Identifiers
urn:nbn:se:kth:diva-161740 (URN)
Note

QS 2015

Available from: 2015-03-16 Created: 2015-03-16 Last updated: 2015-03-16Bibliographically approved
3. Comparison of valuation and lending policies in Germany and Sweden
Open this publication in new window or tab >>Comparison of valuation and lending policies in Germany and Sweden
(English)Manuscript (preprint) (Other academic)
National Category
Economics
Identifiers
urn:nbn:se:kth:diva-161741 (URN)
Note

QS 2015

Available from: 2015-03-16 Created: 2015-03-16 Last updated: 2015-03-16Bibliographically approved

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Licentiate Thesis(503 kB)281 downloads
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