Determinants of housing prices in Spanish cities

In: Journal of Property Investment & Finance, Volume 21, Issue 2, p. 109-135

Abstract

Residential price levels in Spain vary broadly among markets. Real estate theory explains that prices depend on market characteristics such as vacancy level, land availability, construction supply elasticity to respond to high or low speed to changes on the demand, as well as potential for economic growth, industrial and services activities located inside urban areas, etc. An analysis of prices in Spanish main cities shows that tensions appear to exist in some of them where economic activity shows different dynamism and price level appears to be independent of it. This paper tries to find evidence of the existing relationship between residential prices and economic and demographic factors that are demand determinants such as wages, migrations and productive structure, among others, to explain price formation in Spanish cities. It uses panel data and GLS methodology applied to 71 main Spanish province capitals and cities with more than 100,000 inhabitants. The results show evidence of determinants of housing prices and how some relationships appear to exist between price levels and families' waged income as well as with population and productive structure in Spanish cities.