The Spanish housing market: is it fundamentally broken?

Abstract

This paper aims to investigate the relationship between housing prices and their main fundamental determinants using the example of Spain and considering the possibility of structural breaks in the relationship. We find that the cointegrating coefficient estimates are quite unstable over 2001Q1-2017Q4 and need to be estimated for different subperiods. Specifically we find that the main long-run fundamentals explain the behaviour of equilibrium house prices well during the boom-bust period. However, only corporate profit, or capital income, seems to explain the evolution after the recovery from the recession.