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Understanding AffordabilityThe Economics of Housing Markets$
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Geoffrey Meen and Christine Whitehead

Print publication date: 2020

Print ISBN-13: 9781529211863

Published to Policy Press Scholarship Online: January 2021

DOI: 10.1332/policypress/9781529211863.001.0001

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What Factors Determine Changes in House Prices and Rents?

What Factors Determine Changes in House Prices and Rents?

(p.39) 3 What Factors Determine Changes in House Prices and Rents?
Understanding Affordability

Geoffrey Meen

Christine Whitehead

Policy Press

Whatever measure of affordability is used house prices and rents play a central role and Chapter 3 is concerned with what causes these two variables to change over time and vary across different parts of the country. Although increases in house prices have been particularly strong in the UK by international standards, other countries are also discussed. In fact, house price trends and volatility can be explained by a fairly small number of variables – and their influence has been remarkably consistent over the last fifty years. The problem has been rather that house prices are very sensitive to changes in incomes, interest rates and credit conditions and these vary greatly over time. Therefore, modest changes in macroeconomic conditions have disproportionate effects on housing. UK empirical work on market rents is less well-developed than for house prices, but the chapter considers the reasons why rents appear to have risen at a slower rate than house prices.

Keywords:   House prices, Rents, Interest rates, Credit, Income, Volatility

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