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Between 1997 and 2005, the German government provided owner‐occupied subsidies to fund new private housing construction and stock purchases to increase owner‐occupied housing. The purpose of this paper is to analyse the impact of these subsidies on total housing construction for the 1997‐2007 period using regionalised data. This paper tests for differences between counties and cities and examines whether local participation in housing programs is related to regional migration and fertility. Based on the dynamic results, short‐ and long‐run elasticities with respect to the subsidy program are calculated.

A balanced panel data set is used that covers approximately 95 percent of all German NUTS‐3 regions (counties and independent cities) for the 1997‐2007 period. To control for serial correlation, possible endogenous relationships and omitted variable bias problems, the System Generalised Methods of Moments estimation technique is applied.

A significantly positive impact of subsidised construction is detected in counties with an elasticity of approximately 0.2 in the short run and 0.48‐0.58 in the long run. The elasticities in independent cities are significantly lower, at 0.11 and 0.32‐0.37, respectively. No significant effect of migration on construction was found, in contrast to a significantly positive effect of fertility, especially at the county level. The estimates suggest a significantly negative effect of subsidised stock purchases on total construction.

Tests for other countries using regional data on interest rates, construction costs and housing prices could lead to further insights.

The findings suggest that further owner‐occupied subsidy programs should be geared toward families or larger households. It also seems important to provide sufficient building land to enable households to make use of housing construction subsidies.

This is the first regional paper to examine housing construction elasticities with respect to a subsidisation program for housing construction and stock purchases that was designed for virtually all households in a country. It is also the first paper to test for differences in participation in a large‐scale, national housing program related to migration and fertility.

The purpose of this paper is to explore the extent that interest subsidies have impacted on the total production of Swedish single‐ and multifamily houses. It also intends to examine whether tenure neutrality provision of interest subsidy that subsidy policy advocates was maintained.

Using a multiple regression of two models, a balanced panel data from 1975 to 2006 that consist of various related construction cost variables of all regions of Sweden will be analyzed. Instrumental variable (IV) and seemingly unrelated regressions (SUR) will be utilized to examine the role of subsidy on housing production and tenure neutrality, respectively.

The results seem to indicate that a general subsidy is expected to be ineffective since it may increase the existing stocks of a low demand region but not the housing stocks of big regions where the demand is high. Moreover, a targeted subsidy may change the balance between different types of housings since lower construction costs due to the subsidy could favor the development of certain profitable housing types.

The paper tries to substantiate (empirically) the assertion that subsidy policies contributed both to the production of housing units in low demand regions and distortion of the preference of different tenures.

This paper aims to present a model that analyses the value gap, the difference between vacant possession value and tenanted investment value, for the houses of Dutch housing associations. The paper also aims to explore why the value gap is a structural phenomenon in The Netherlands and why it is an important factor contributing to the malfunctioning of the housing market. This gives an interesting expansion of the value gap theory.

By using the well‐known concept of user costs and using market equilibrium as a reference, the model quantifies the influence of six factors that cause the value gap. This is done for The Netherlands in total and for each of the 452 housing associations separately.

The value gap between the owner‐occupied and the rental sector is immense. This is especially the case with the rented houses owned by the housing associations, constituting one‐third of the total housing stock. The vacant possession value of these houses is on average €151,000; the reported tenanted investment value is no more than €33,000. Important factors that are responsible for this gap are, on the one hand, the fiscal subsidies in the owner‐occupied sector and, on the other hand, rent control and the policy of the housing associations characterised by a low rent level and high maintenance and management costs.

This is the first paper that analyses and quantifies the factors contributing to the value lost by Dutch housing associations' operations.

This paper aims to examine tenure choice in the Swedish housing market with explicit consideration of households’ credit constraints in combination with age and ethnic background.

Observations of some 940,000 households were used to analyse the Stockholm housing market in 2008, prior to the implementation of the mortgage cap. The tenure choice models were estimated using a two-stage instrument variable (IV) logit and probit model with ownership or renting as outcome.

The results suggest, as expected, that being financially restricted is negatively related to owning. In particular, financial restriction is more binding for young households and households with a foreign background than for other types of households. These two sub-groups are also known to have difficulties establishing themselves in the rental housing market, and are therefore specifically vulnerable to further financial constraints such as borrowing restrictions or amortization requirements.

The government in Sweden has become concerned with the rapid growth in household indebtedness. As a response, a 0.85 loan-to-value ratio mortgage cap was introduced in 2010. However, critics are concerned with the effects this may have on the possibility for certain households to purchase a dwelling.

In this paper, we identify the relationship between (local) housing supply and (local) house price developments, especially in The Netherlands.

We measure the influence of new building on house prices by comparing areas designated for concentrated new building (main Dutch cities) with areas where no large housing projects are developed. On the basis of classical economic theory, if the housing market is functioning as it should, then supply will soon respond to a shock in demand and restore stability in house prices.

For the main Dutch cities, we found that an increase in supply triggers a fall in prices. In other areas the correlation coefficients are more or less zero, which can lead us to conclude that the expansion of the housing stock is market‐compliant.

The housing market is not functioning, as it should: new supplies depend on the complex decisions of the suppliers, thus making it difficult to express statistically the causality between the house price developments and the new supplies.

Most studies suggest that macro data are unable to measure the true dependency between the house prices and the new building and claim at the same time that micro data sets are incomplete. Also our research was hampered by a shortage of usable data.

New building can push up the value of the surrounding housing because it is associated with a qualitatively better housing stock. We conclude that in regions where new building has been concentrated in designated areas, the relationship between housing production and price development is inverse.

This paper aims to investigate whether the homes in the Norwegian capital, Oslo, are overpriced. While house prices in many countries dropped after the financial crisis, those in Norway have continued to increase. Over the past 20 years, real house prices in Oslo have increased by around 7 per cent yearly.

The authors use a vector error correction model to estimate the equilibrium between house prices, rents, construction costs and wages to examine whether house prices in Oslo are overpriced.

Long-term relationships between house prices, rents, construction costs and wages are found and used to estimate equilibrium house prices in Oslo. The overpricing in Oslo compared to estimated equilibrium prices is around 35 per cent.

Price–rent, price–construction cost and price–income ratios are often used, by practitioners to say something about over- or underpricing in the housing market. We test and find that house prices, rents and construction costs move toward constant ratios in the long run, while wages are found to be weakly exogenous in the system.

Our estimate of overpricing gives households, investors and policy-makers a better understanding of the risk associated with owning dwellings.

The purpose of this paper is to investigate the factors that affect the responsiveness of new housing supply to price changes in Denmark, France, Germany, The Netherlands, Spain, the UK and the USA. The practical purpose is to identify and consider the similarities and differences in the factors that affect new housing supply amongst the selected countries.

Quantitative estimates of the price elasticity of new housing supply were reviewed and evaluated. Generally they were found to describe and measure but not explain variations in housing supply responses to house price changes. Qualitative research was undertaken based on case study interviews with experienced senior managers of house‐building firms with the objective of obtaining insights into the variables affecting housing supply in each country.

First, quantitative studies provide necessary but insufficient explanation of the factors determining new housing supply. Second, there are a large number of macro‐economic, micro‐economic and institutional factors that explain new housing supply which appear to vary in absolute and relative importance between countries.

The primary research findings are based on a small number of case study interviews. Further work is required to confirm the insights using more interviews and/or large‐scale surveys. The work could also be undertaken at other times in different market conditions.

Factors explaining variations in new housing supply in each country have been shown to vary amongst countries. Policy makers can address these factors in achieving balance between supply and demand, and in understanding what needs to be done to increase new housing supply.

The research demonstrates the value of adopting a pluralist methodology in measuring and explaining the causes of variations in new housing supply.

The purpose of this paper is to highlight the relation between the loan-to-value (LTV) ratio and the price-rent (PR) ratio. The paper intends to relate the PR-ratio to housing return and the potential for a leverage gain in housing investments by considering the funding structure of housing investments.

Combining a PR-ratio approach with the housing return in the case of mortgage-financed housing, as presented by Borgersen and Greibrokk (2012), this paper relates LTV to the PR-ratio.

When formalising the relationship between leverage and housing return, as given by Muellbauer and Murphy (1997), the paper finds the effect of a higher LTV on the user cost of housing as the net effect of a higher borrowing cost and the associated leverage gain. The latter depends on the relationship between house price growth and the mortgage rate and, because the leverage gain has an ambiguous effect on the user cost of housing, the relation between the LTV-ratio and the PR-ratio is context-specific.

The paper aims to contribute to the literature on PR ratios in two ways. First, by explicitly including the LTV-ratio in the user cost of mortgage financed housing and, correspondingly, in the PR-ratio derived from the user cost. Second, by including the funding structure of housing investments the expression for the capital gain, which often is discussed in the PR-ratio literature, is related to the funding structure and includes both a price gain and a leverage gain.

The purpose of this paper is twofold: first, it derives the optimal loan-to-value (LTV)-ratio for a mortgagor that maximizes the return to home equity when considering the capital structure of housing investment. Second, it analyses the demand-side contribution to mortgage market variability across monetary policy regimes.

The paper endogenizes both the relation between the LTV ratio and the mortgage rate and the relation between LTV and the rate of appreciation. When we consider LTV-variance and the demand-side contribution to mortgage market variability, three stylized regimes is considered.

The paper finds an intuitive ranking of the optimal LTV-ratios across regimes, and the optimal LTV-ratio peaks during a housing boom. When, however, monetary policy ignores asset inflation the demand-side contribution to market variability is highest during normal market conditions. Hence, there is a potentially hump-shaped relation between the risk exposure of individual mortgagors and the demand-side contribution to mortgage market variability.

The paper finds a potentially hump-shaped relation between the risk exposure of individual mortgagors and the demand-side contribution to mortgage market variability, which, to the best of our knowledge, is novel. The paper shows how macro-prudential and monetary policy are complementary tolls for preserving financial stability.

The purpose of this paper is to examine the degree of housing affordability in China's 35 large and medium cities. Furthermore, this paper investigates the relationship between housing affordability and the house prices using data from China's 35 large and medium cities from 1996 to 2007.

This paper constructed the housing affordability index and classified cities in terms of their housing affordability degree. OLS, unit root test and cointegration test have also been used in the empirical test section.

The results exhibit that the housing price has played a more important role in housing affordability than household income. Thereby, decreasing housing price is more important than household income to alleviate the housing affordability problem. Meanwhile, housing size has exerted a great impact on housing affordability. Accordingly, developing more affordable houses is an alternative to mitigate the housing affordability issue in China. In addition, it is also found that the housing reform facilitates the housing affordability issue due to the low sale price of the public houses; the population growth rate and geographic locations have no significant impact on the housing affordability.

In terms of the research limitations, the heterogeneity factor may be introduced considering the regional heterogeneity of cities in China. Therefore, researchers are encouraged to test the propositions with enriched datasets.

Practical implications are that decision‐makers in government should pay close attention to the risk of the housing bubble. That is, the soaring house price was driven by investment instead of by the demand side.

This paper contributes to defining the dynamic upper boundary of the percentage of housing expenditure to income ratio via Engel's coefficient using the housing market data of 35 large and medium cities in China from 1996 to 2007.