2/2025 Fabio Canova, Natalia Levenko. Is there club convergence in the European housing markets?
Working Papers of Eesti Pank 2/2025
We analyse real residential property prices and housing affordability in 13 European countries from 1975Q1 to 2023Q4 and find no significant evidence of convergence. Canova’s (2004) procedure fails to detect convergence clubs for the full sample. The Kolmogorov-Smirnov test gives only slight indications of temporary clustering. The increasing heterogeneity in house prices and affordability observed since the 2020s is expected to persist into the 2040s. Population growth and supply-side factors drive the heterogeneity, and recessions amplify house price dispersion but reduce affordability dispersion. Looser borrower-based macroprudential policies are associated with lower dispersion in both house prices and affordability.
JEL Codes: C11, E31, E32, G28, O47, O52, R31
Keywords: House prices, housing affordability, convergence, European housing markets, macroprudential policy
