Housing Prices, Yields and Credit Conditions in Dublin since 1945
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Housing Prices, Yields and Credit Conditions in Dublin since 1945 Richard Keely 1 & Ronan C. Lyons 2 # Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract Housing is central to the broader economy, as highlighted by the Great Recession of 2007–2009, yet few reliable long-run series exist for sale and rental prices of housing. Using hedonic methods, frequency conversion techniques, and a detailed dataset of over one million sale and rental listings from newspapers and online, we construct new indices of sale and rental prices from 1945 for Dublin, Ireland as a whole and for six sub-markets within the city. Sale prices rose by an average of 8.4% per year between 1945 and 2018, compared to an increase in general consumer prices of 5%. Market rents are estimated to have increase by 6.3% per year, well above prior estimates (4.4%), a finding with implications for accurately measuring living costs and living standards in Ireland since World War II. There is some evidence of rents converging across markets within the city but sale prices have diverged over the same period. Adjusting for inflation, there have been four major housing market cycles since 1945, with peaks in the late 1940s, the early 1970s, the early 1980s and the mid-2000s. The presence of both sale and rental information allows the calculation of the ratio of sale to rental prices for housing, the housing price ratio, a fundamental barometer of housing market health. We identify three phases in the gross yield on Irish housing since 1945, with downward shifts in the yield in the early 1970s and mid-1990s. An errorcorrection econometric analysis confirms the predictions of economic theory, that credit conditions in the credit market and user cost drive changes in the yield over time. Keywords Housing price ratio . Housing markets . Economic history . User cost JEL Codes E32 . G12 . N14 . N94 . R21 . R31
* Ronan C. Lyons [email protected]
1
European University Institute, Florence, Italy
2
Trinity College Dublin, Dublin, Ireland
R. Keely, R. C. Lyons
Introduction Housing is the dominant asset in household balance sheets and the single largest component of household expenditure. The importance of housing was underscored by its central role in the recent Great Recession – with many high-income countries, such as the US, UK and Spain, experiencing substantial boom-bust cycles in their housing markets. Yet despite the importance of housing in the broader macroeconomy, there exist few reliable time series for housing prices, either sale or rental, extending back before the 1980s, with which the episode of the 1990s and 2000s could be put into a longer-run perspective.1 This is in part due to the illiquidity of the sales market and the high dimensionality of housing as a good: each dwelling is unique and infrequently traded. Ireland was home to the world’s most extreme housing market cycle of the 1990s and 2000s, with nominal sale prices rising by a factor of four in 10 years to 2007, before falling by almost 60% in the following 5
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