Bubbling Away: Forecasting Real Estate Prices, Rents, and Bubbles in a Transition Economy
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Bubbling Away: Forecasting Real Estate Prices, Rents, and Bubbles in a Transition Economy Galina An1 · Charles Becker2 · Enoch Cheng3 Accepted: 29 September 2020 © Association for Comparative Economic Studies 2020
Abstract Real housing prices have both surged and swooned in formerly socialist countries. We use 2000–2017 aggregate housing sales and rental price data from Kazakhstan to explore price movements during boom and stagnation eras, investigating the rent–price ratio’s (RPR) capacity to predict housing returns and rent growth for an emerging post-Soviet economy. RPR predicts returns better during periods of price increases than declines, and its importance in predicting the bubble component diminishes with time. Short-run RPR changes are consistent with rational bubble behavior during the period of secular upswing but different predictive variables matter during price increases and declines. Keywords Rent–price ratio · Bubbles · Transition economies · Kazakhstan JEL Classification O18 · P30 · R21 · R30
* Charles Becker [email protected] Galina An [email protected] Enoch Cheng [email protected] 1
Department of Economics, Kenyon College, Gambier, OH, USA
2
Department of Economics, Duke University, 312 Social Sciences, Box 90097, Durham, NC 27708, USA
3
Department of Economics, University of Colorado, Denver, CO, USA
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Introduction1 Real housing prices have grown astonishingly and with great volatility over the past two decades in formerly socialist countries that have enjoyed successful economic transitions. While a modest literature has addressed the determinants of housing price growth and the presence of bubbles in former Soviet countries, the papers have been largely descriptive and mostly use low frequency data. This paper adds both formalism and focus to the search to identify housing price movements. Most critically, it takes advantage of information on housing rents as well as on asset prices for both new construction and resales. To our knowledge, extended time series on housing rents at regional levels do not exist in other transition economies, and their presence here enables us to derive novel insights on the nature of asset price evolution. The lack of the literature is remarkable. A search for “housing bubbles” on Google Scholar turns up over 180,000 hits. While most relate to developed countries, “housing bubbles China” still yields nearly 60,000 hits and many important papers. Yet, vanishingly little is written on the topic with a focus on former Soviet republics, especially beyond Russia—even though housing prices in parts of the region have exhibited swings that make North American, Chinese (for example, Han et al. 2018), or Western European prices seem as bubbly as flat beer in contrast to Soviet champagne. The mystery is further compounded by the existence of impressive urban economics and real estate analytics sites, such as Russia’s Institute for Urban Economics https://www.urbaneconomics.ru/, Kazakhstan’s Zillow-like competitor Krish
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