Should UK House Prices Rise in Line with Earnings?

The Lantern Research Paper, July 2010

18 Pages Posted: 10 Jul 2010

See all articles by Colin Ellis

Colin Ellis

Hult International Business School (London)

Date Written: July 8, 2010

Abstract

House prices are a constant source of fascination and discussion in the UK. In the short term, prices move closely with market conditions. Over the longer term, meanwhile, attention often focuses on simple ratios of house prices to earnings. Despite this, relatively little work has been done to assess the sustainable long-term trend in house prices – and, in particular, how the sustainable ratio of house prices to earnings may have evolved over time. As such, this paper examines the behaviour of house prices in the context of the past forty years of spending patterns, finding that consumer preferences are such that the equilibrium ratio of house prices to earnings may well have risen over time.

Keywords: House prices, earnings, relative prices

JEL Classification: E21, R21

Suggested Citation

Ellis, Colin, Should UK House Prices Rise in Line with Earnings? (July 8, 2010). The Lantern Research Paper, July 2010, Available at SSRN: https://ssrn.com/abstract=1636363 or http://dx.doi.org/10.2139/ssrn.1636363

Colin Ellis (Contact Author)

Hult International Business School (London) ( email )

35 Commercial Road
London, E1 1LD
United Kingdom

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