Identification of house price bubbles using robust methodology: evidence from Polish provincial capitals

Abstract

This article aims to check whether there has been a price bubble in the Polish major housing markets in recent years. To accomplish this goal, the log price-to-rent ratios in Polish provincial cities were analysed. In order to avoid incorrect conclusions, the log price-to-rent ratio using the instrumental variable estimation and ordinary least squares methods was decomposed into two components: fundamental and non-fundamental. The latter was then examined using the Phillips, Shi, and Yu procedure to detect explosive and downward movements. The results of the study showed that, in general, over 2011, actual log price-to-rent ratios in the analysed cities were below their fundamental values, i.e., a negative price bubble existed. However, more or less since the beginning of 2013, the surveyed markets have seen an increasing level of the non-fundamental component of the index under study, and its particularly explosive movements are visible in the first quarters of 2014. Finally, this analysis indicated future research directions and study implications for Polish policy-makers, housing investors, and households.

The housing market in Poland during the Covid-19 pandemic

“…According to unanimous expert opinions, the reason for the changes in the housing market is the change in the interest rate by the NBP, affecting the creditworthiness of those buying flats from developers [42,43]. The NBP reference rate was 1.5% as of 5 March 2015, but it was reduced to 1% on 18 March 2020, then to 0.5% at the beginning of April 2020, and finally to 0.1% at the end of May 2020 [43].…”

“…The steady cycle in the Polish housing market is explained by the still unsatisfied demand for housing and continuously rising wages [46]. The dynamic growth of housing prices on the housing market, which has averaged 50% in real terms over the last 14 years, has negative consequences for the financial stability of households [42]. The lack of reliable information on the functioning of the housing market in Poland, including the presence or absence of price bubbles, is a challenge [42,44].…”

“…The dynamic growth of housing prices on the housing market, which has averaged 50% in real terms over the last 14 years, has negative consequences for the financial stability of households [42]. The lack of reliable information on the functioning of the housing market in Poland, including the presence or absence of price bubbles, is a challenge [42,44]. The calculation of the price-rent ratio using data from the NBP on the level of housing rents and prices shows that the Polish rental housing market has become a place for institutional investment for several years [42].…”

“…The lack of reliable information on the functioning of the housing market in Poland, including the presence or absence of price bubbles, is a challenge [42,44]. The calculation of the price-rent ratio using data from the NBP on the level of housing rents and prices shows that the Polish rental housing market has become a place for institutional investment for several years [42].…”

An empirical investigation into regional housing market synchronisation in Poland

“…The important influencing factors can also be found in analysing the migration trends and their links with the business cycles and overall financial stability (Vučković & Škuflić, 2021), especially in the case of intellectual migration (Oliinyk et al, 2022). Furthermore, there is a substantial body of empirical evidence that indicates that housing markets dynamics are interconnected with mortgage markets, financial stability, and the broader economy and strongly influenced by investor expectations (Adarov, 2022;Cesa-Bianchi, 2013;Duca, 2020;Duca et al, 2021;Hoesli, 2020;Mizero et al, 2018;Do & Park, 2018;Jorda et al, 2019;Brychko et al, 2021;Brychko et al, 2021;Kuo et al, 2021;Tomal, 2021;Trojanek et al, 2022). The mortgage markets, in their turn, are significantly affected by borrowers' financial ability (Kovacs & Pasztor, 2021).…”