Housing market cycles – a disequilibrium model and its application to the primary housing market in Warsaw

• Authors: Hanna Augustyniak , Jacek Łaszek , Krzysztof Olszewski , Joanna Waszczuk
• Languages of publication: EN

Abstracts

EN

This paper presents a simple disequilibrium model in the primary housing market, calibrated to the Warsaw market. Our aim is to point out that the primary housing market, due to the long construction process is always in disequilibrium, which has important policy implications. We discuss the last housing cycle and show how a combination of slight demand shocks with short-term rigid supply leads to strong fluctuations of house prices and new construction. The primary market can create a significant distress to the economy, because when house prices rise, this sector attracts capital and workers and is able to generate excessive supply, which finally can lead to the burst of the price bubble. The cyclical character is a permanent feature of the property market and can be explained by the inelasticity of supply. Market participants form price and demand expectations based on past observations. This causes frequent cycles that, under specific conditions, can lead to economic crises. We believe that the model describes the reality of the primary housing market better than equilibrium models do, so it can be useful for central banks and financial supervision institutions in the analysis of the impact of fiscal and monetary policy and regulations on the real estate market.

Keywords

EN

cycles in the housing market; disequilibrium; imbalances; banking sector; banking regulations

• Publisher: Wydział Nauk Ekonomicznych Uniwersytetu Warszawskiego
• Journal: Ekonomia. Rynek, Gospodarka, Społeczeństwo
• Year: 2013
• Issue: 35
• Pages: 5-23

Contributors

author

Hanna Augustyniak

• Financial Stability Department, National Bank of Poland

author

Jacek Łaszek

• Warsaw School of Economics and Financial Stability Department, National Bank of Poland

author

Krzysztof Olszewski

• Financial Stability Department, National Bank of Poland

author

Joanna Waszczuk

• Financial Stability Department, National Bank of Poland