Should UK House Prices Rise in Line with Earnings?
The Lantern Research Paper, July 2010
18 Pages Posted: 10 Jul 2010
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: Suggested Citation
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