Page 5 - IDEA Studie 04 2023 Bydleni

Study 4/2023 Would Real House Prices Risen More Slowly if More New Housing Had Been Built in 2013–2021? Probably Not2 MARCH 2023 ROMAN ŠUSTEK, LUCIE ZAPLETALOVÁ Summary of key issues • This study presents an easily applicable method for the study of price trends in residential property markets and the factors that affect them. The study describes the basic reasoning behind the method and presents results of using it to analyse house price increases in the Czech Republic during the period of 2013-2021, and to analyse various future housing market scenarios. • Between 2013 and 2021, real residential property prices in the Czech Republic rose by 63%. The income effect, i.e., growth of real household income, was responsible for 32 percentage points (p.p.). A further 20 p.p. of growth was due to increasingly affordable mortgage financing. The implicit costs of mortgage financing decreased during the observed period, particularly as a result of expected further growth in real household incomes, which allowed faster amortisation of mortgage payments in relation to household income. • During 2013–2021, the rate of new housing construction remained at approximately the historical average, when expressed in percentage growth. Even if new housing had been constructed more intensively, this would not have limited rising real estate prices, because they were driven by other factors. For new housing construction to have reached a level sufficient to compensate for the increase in property prices that resulted from the drop in the implicit costs of mortgage financing, construction would have had to exceed 100,000 residential housing units per year in this period; a rate that exceeds the historical record high for housing construction reached in 1975. 2 The authors are grateful to Daniel Münich and Martin Lux for their valuable comments and advice both on the original academic study and on this shortened version. This study presents the authors’ own views and not the official position of the Czech Academy of Sciences Economics Institute nor of the Charles University Center for Economic Research and Graduate Education (CERGE). Any remaining ambiguities or errors are the authors’ own. This study was produced with support from the Czech Academy of Sciences within its Strategy AV21 Research Programme Society in Motion. 3