Abstract
Purpose
The purpose of this paper is to present a framework for the assessment of the fundamental value of house prices in the largest Ukrainian cities, as well as to identify the thresholds, the breach of which would signal a bubble.
Design/methodology/approach
House price bubbles are detected using two approaches: ratios and regression analysis. Two variants of each method are considered. The authors calculate the price-to-rent and price-to-income ratios that can identify a possible overvaluation or undervaluation of house prices. Then, the authors perform regression analyses by considering individual multi-factor models for each city and by using a within regression model with one-way (individual) effects on panel data.
Findings
The only pronounced and prolonged period of a house price bubble is the one that coincides with the Global Financial Crisis. The bubble signals produced by these methods are, on average, simultaneous and in accordance with economic sense.
Research limitations/implications
The framework described in this paper can serve as a model for the implementation of a tool for detecting house price bubbles in other countries with emerging, small and open economies, due to adjustments for high inflation and significant dependence on reserve currencies that it incorporates.
Practical implications
A tool for measuring fundamental house prices and a bubble indicator for housing markets will be used to monitor the systemic risks stemming from the real estate market. Thus, it will help the National Bank of Ukraine maintain financial stability.
Social implications
The framework presented in this research will contribute to the enhancement of the systemic risk analysis toolkit of the National Bank of Ukraine. Therefore, it will help to prevent or mitigate risks that might originate in the real estate market.
Originality/value
The authors show how to implement an instrument for detecting house price bubbles in Ukraine. This will become important in the context of the after-war reconstruction of Ukraine, with mortgages potentially becoming the main tool for the financing of the rebuilding/renovation of the residential real estate stock.
The purpose of this paper is to present a framework for the assessment of the fundamental value of house prices in the largest Ukrainian cities, as well as to identify the thresholds, the breach of which would signal a bubble.
Design/methodology/approach
House price bubbles are detected using two approaches: ratios and regression analysis. Two variants of each method are considered. The authors calculate the price-to-rent and price-to-income ratios that can identify a possible overvaluation or undervaluation of house prices. Then, the authors perform regression analyses by considering individual multi-factor models for each city and by using a within regression model with one-way (individual) effects on panel data.
Findings
The only pronounced and prolonged period of a house price bubble is the one that coincides with the Global Financial Crisis. The bubble signals produced by these methods are, on average, simultaneous and in accordance with economic sense.
Research limitations/implications
The framework described in this paper can serve as a model for the implementation of a tool for detecting house price bubbles in other countries with emerging, small and open economies, due to adjustments for high inflation and significant dependence on reserve currencies that it incorporates.
Practical implications
A tool for measuring fundamental house prices and a bubble indicator for housing markets will be used to monitor the systemic risks stemming from the real estate market. Thus, it will help the National Bank of Ukraine maintain financial stability.
Social implications
The framework presented in this research will contribute to the enhancement of the systemic risk analysis toolkit of the National Bank of Ukraine. Therefore, it will help to prevent or mitigate risks that might originate in the real estate market.
Originality/value
The authors show how to implement an instrument for detecting house price bubbles in Ukraine. This will become important in the context of the after-war reconstruction of Ukraine, with mortgages potentially becoming the main tool for the financing of the rebuilding/renovation of the residential real estate stock.
| Original language | English |
|---|---|
| Pages (from-to) | 297-324 |
| Number of pages | 28 |
| Journal | Journal of European Real Estate Research |
| Volume | 16 |
| Issue number | 2 |
| Early online date | 26 May 2023 |
| DOIs | |
| Publication status | Published - 11 Oct 2023 |
Bibliographical note
This research took place through the coaching program under the Bilateral Assistance and Capacity Building for Central Banks (BCC), financed by SECO (the Swiss State Secretariat for Economic Affairs) and the Graduate Institute in Geneva. The authors acknowledge helpful suggestions and comments from Elias Oikarinen at the University of Oulu (Finland), Louis Johner at the University of Geneva (Switzerland) as well as from two reviewers. The views expressed in this paper are solely those of the authors and do not necessarily reflect those of the National Bank of Ukraine.Keywords
- house price bubbles
- fundamental house prices
- mortgage lending
- systemic risk
- regression analysis
- Ukraine
Access to Document
- Shmygel_etal_JERER_House_Price_Bubble_AAM
This author accepted manuscript is deposited under a Creative Commons Attribution Non-commercial 4.0 International (CC BY-NC) licence. This means that anyone may distribute, adapt, and build upon the work for non-commercial purposes, subject to full attribution. If you wish to use this manuscript for commercial purposes, please visit Marketplace The final published version is available at https://doi.org/10.1108/JERER-10-2022-0031 Shmygel, A. and Hoesli, M. (2023), "House price bubble detection in Ukraine", Journal of European Real Estate Research, Vol. 16 No. 2, pp. 297-324.