An analysis of the recent evolution of house price to rent ratios in Spanish provinces

Abstract

In this work, we analyze the analysis of the recent evolution of house price to rent ratios in Spanish provinces. First, we review recent literature about the house price to rent ratio. Second, we make a brief analysis of the current situation of the Spanish rental market and describe possible government interventions. Finally, we carry out an empirical analysis to determine the influence on the Spanish provinces’ house price to rent ratio of some factors previously shown to be linked to this variable. The factors we used to explain the price to rent ratio are the average net income per household, median age, property taxes, and year. We achieve consistent estimates with a fixed effect panel-data model. We find that the house price to rent ratio is higher in those provinces with higher income per household, but is not significantly affected by the IBI rate. Surprisingly, age seems to affect negatively the house price to rent ratio, but the estimated coefficient is only weakly significant. Moreover, the house price to rent ratio in the Spanish provincial capitals has been increasing, on average, in the last six years.