Investigating the Housing Price Bubble in Metropolises of Iran during 2000-2006

Abstract

Non-optimal allocation of resources, increased levels of speculative activities, increased transfer of capital in asset market can be considered as the main results of housing price bubble. The main reason for the importance of study of housing price bubble, separate from its importance as an asset, is that its price has a significant effect on household and government decisions. Therefore, the identification of the price bubble in the housing market is very important for the policymakers to take the proper policy. In this study, the panel data method is used to estimate the housing demand function and identify the housing price bubble in 11 metropolises of Iran during 2000-2006. Then, the residual term of estimated model is considered as the housing price bubble. The results indicate the existence of price bubbles in metropolises such as housing price bubble in Tehran declined since the 2002 and continued until 2006. But due to this recession, the housing market in other provinces prospered so that it reflects the increased price bubble during intended period.