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Prices, Rents and Rational Speculative Bubbles in the Sydney Housing Market *
Author(s) -
HATZVI EDEN,
OTTO GLENN
Publication year - 2008
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.2008.00484.x
Subject(s) - economic rent , economics , metropolitan area , asset (computer security) , residential property , hedonic pricing , monetary economics , financial economics , property market , property (philosophy) , capital asset pricing model , microeconomics , econometrics , finance , economic geography , real estate , geography , philosophy , computer security , archaeology , epistemology , computer science
We examine whether asset pricing theory can explain residential property prices. Using quarterly data for Local Government Areas in Sydney from 1991 to 2006, we find little evidence that variations in price : rent ratios anticipate future real rent growth. Instead changes in price : rent ratios apparently reflect changing expectations about future discount factors. Some important geographical differences in the behaviour of property prices across metropolitan Sydney are identified. A significant proportion of the variation in property prices in outer western regions of Sydney is not explained by either rents or discount factors; pointing to a possible role for a speculative bubble.