Housing bubbles are a well-known source of financial instability. In addition, given the importance of this sector to the economy, the collapse of such bubbles tends to be followed by deeper recessions and slower recoveries than other crises, as the recent boom-bust housing cycles in many countries have clearly demonstrated.

In the European union, the policy instruments available to address this and to prevent future housing bubbles are implemented either at the national level (macroprudential policies) or at the euro-area level (monetary policy). However, recent research suggests that house price developments and bubbles are above all a local phenomenon.

There are significant regional differences in house price developments within EU countries, in particular between capital cities and other regions. Our results suggest that house price fluctuations in capital cities tend to be more volatile and stronger than in the rest of the countries, warranting more targeted measures at the local level.

House Price Bubbles, Credit Bubbles, Financial Stability
Financial Crises (jel G01), Banks; Other Depository Institutions; Mortgages (jel G21), Government Policy and Regulation (jel G28)
ERIM Report Series Research in Management
ERIM report series research in management Erasmus Research Institute of Management
Rotterdam School of Management (RSM), Erasmus University

Clayes, G, Efstathiou, K, & Schoenmaker, D. (2017). Spotting Excessive Regional House Price Growth and What to Do About It (No. ERS-2017-017-F&A). ERIM report series research in management Erasmus Research Institute of Management. Retrieved from http://hdl.handle.net/1765/105357