Discussion paper

DP17780 Interest rates and the spatial polarization of housing markets

Rising within-country differences in house values are a much debated trend in the U.S. and internationally. Using new long-run regional data for 15 advanced economies, we first show that standard explanations linking growing price dispersion to rent dispersion are contradicted by an important stylized fact: rent dispersion has increased far less than price dispersion. We then propose a new explanation: a uniform decline in real risk-free interest rates can have heterogeneous spatial effects on house values. Falling real safe rates disproportionately push up prices in large agglomerations where initial rent-price ratios are low, leading to housing market polarization on the national level.


Amaral, F, M Dohmen, S Kohl and M Schularick (2023), ‘DP17780 Interest rates and the spatial polarization of housing markets‘, CEPR Discussion Paper No. 17780. CEPR Press, Paris & London. https://cepr.org/publications/dp17780