U.K.’s Low Rates Can’t Explain All of Housing’s Gains: BOE Staff

(Bloomberg) -- The rapid gains in U.K. house prices can't be explained wholly by the drop in risk-free interest rates, according to research by Bank of England staff that disputes the findings of former policy maker David Miles.

A paper by Miles and Victoria Monro earlier this year concluded that factors such as low housing supply, financial deregulation or bubble-like behavior, play little to no role in Britain's real-estate boom. That view may be “too simple,” according to analysis published on the BOE staff blog Wednesday.

By looking at the experience in other countries, the timing of rate declines and regional variations, economists Lisa Panigrahi and Danny Walker found that factors such as credit conditions or supply constraints could be important, too.

“Future research might be needed to better quantify some of these factors and to build them into a richer modeling framework that considers interactions between interest rates, credit conditions, rents and house prices,” they wrote.

Miles's thesis can't adequately explain house-price movements in other countries, nor why falling interest rates and rising property values often didn't happen at the same time. Regional variations within the U.K. also can't be accounted for, the researchers said.

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