House Prices and Rents in Spain: Does the Discount Factor Matter?

34 Pages Posted: 8 May 2006

Date Written: April 19, 2006


We estimate alternative price to rent ratios in the Spanish housing market by considering different stochastic discount factors in present value models similar to those used in the financial literature but where the higher rigidity that characterises this market is taken into account. We identify three robust across model regularities: i) the increase in the price to rent ratio since the late nineties helped at first to restore equilibrium, ii) further increases in house prices raised the ratio between 24% and 32% above equilibrium by 2004, although iii) at that time the ratio was only around 2% above its short term adjustment path towards a (new) long run equilibrium.

Keywords: Housing, price-to-rent ratio, overvaluation

JEL Classification: G12, R21, R31

Suggested Citation

Ayuso, Juan and Restoy, Fernando, House Prices and Rents in Spain: Does the Discount Factor Matter? (April 19, 2006). Banco de Espana Research Paper No. WP-0609, Available at SSRN: or

Juan Ayuso (Contact Author)

Banco de España ( email )

Alcala 50
Servicio de Estudios
28014 Madrid
+34 91 338 5735 (Phone)
+34 91 338 5624 (Fax)

Fernando Restoy

Banco de España ( email )

Madrid 28014
(34 91) 338 5119 (Phone)
(34 91) 338 5678 (Fax)

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