75 Pages Posted: 12 Nov 2013 Last revised: 29 Nov 2016
Date Written: November 29, 2016
The infrequent nature of crises means that pure time-series methods struggle to distinguish the effects of capital flight on asset prices from a wide range of alternative drivers. We present a new cross-sectional approach, which is motivated by the insight that investors may have different "preferred habitats" within a broad asset class. We apply the method to the question of whether foreign capital is responsible for residential real estate price movements in global cities such as London and New York, especially during crises. Applying our method on large databases of housing transactions over the past two decades, we find that foreign risk strongly affects London house prices. The effects are long-lasting, and are associated with both safe-haven effects and immigration.
Keywords: house prices, foreign demand, safe-haven, London, political risk, price-pressure
JEL Classification: C53, D80, E47, F21, G12, G15
Suggested Citation: Suggested Citation
Badarinza, Cristian and Ramadorai, Tarun, Home Away from Home? Foreign Demand and London House Prices (November 29, 2016). Available at SSRN: https://ssrn.com/abstract=2353124 or http://dx.doi.org/10.2139/ssrn.2353124