Regional House Price Differences: Drivers and Risks

Abstract

Recently, rapid increases in house prices have caught policy makers’ attention, especially where regional discrepancies are stark. House price fluctuations in large cities can amplify macroeconomic fluctuations and impair financial stability. Price rises in cities tend to be persistent, and since urban areas tend to attract speculative buyers, house price reversals may be larger there. Externalities from such developments can be significant when the city is large and tightly connected to the rest of the country, through supply chain, labour market or financial sector links. Macroprudential policy may be applied to address regionally concentrated house price fluctuations, but the bar to using targeted macroprudential measures is currently high.