Speculative bubbles in the Stockholm housing market 1875-1935?

Abstract

The main purpose of this paper has been to establish whether housing and rent prices share a common trend in the long run. And thus, to determine whether there were speculative bubbles in the Stockholm housing market during the period 1875-1930. This period offered an excellent opportunity for such an investigation due to limited regulation in the housing market. Finally, a newly generated data on Stockholm housing prices from 1875 and data on Stockholm rent prices have given us rare insight into the Stockholm housing market. After applying the statistical procedure of testing for cointegration, we have concluded that Stockholm housing and rent prices share a common trend, i.e. that they return to a long run equilibrium after experiencing an exogenous shock. More specifically, the results indicate a 22% movement back towards equilibrium following a shock to the model, one period later, i.e. one year later. Therefore, we conclude that during the period 1875-1930 there was no indication of a speculative bubble in the Stockholm housing market.