Journal Article

Interest rates and the spatial polarization of housing markets


  • Amaral
  • F.
  • Dohmen
  • M.
  • Kohl
  • S.
  • Schularick
  • M.
Publication Date

Rising within-country differences in house values are a much debated trend in the U.S. and internationally. Using new long-run regional data for 15 advanced economies, we first show that standard explanations linking growing price dispersion to rent dispersion are contradicted by an important stylized fact: rent dispersion has increased far less than price dispersion. We then propose a new explanation: a uniform decline in real risk-free interest rates can have heterogeneous spatial effects on house values. Falling real safe rates disproportionately push up prices in large agglomerations where initial rent-price ratios are low, leading to housing market polarization on the national level.

Kiel Institute Expert


JEL Classification
G10, G12, G51, R30

Key Words

  • House Prices
  • Spatial Polarization
  • Regional Housing Market