A new study shows that the ups and downs in house prices are far more dramatic than most people think—and that government policies play a big role in making them happen. The researchers analyzed housing markets in 23 OECD countries from 1990 to 2019. They found that during boom-and-bust periods, house prices changed by almost 6% a year, compared to a long-term trend of just 2.6%.
According to one of the authors, these cycles matter more than the trend. “These cycles are not random shocks. They are systemic and shaped by institutions that encourage speculative behavior,” said Dr. Ben Tippet, from the Department of International Development.
The study, published in the Socio-Economic Review, identifies two key factors that make housing markets more prone to speculation:
- Low capital gains taxes: Countries that impose minimal taxes on property gains create strong incentives for short-term investment.
- Landlord-friendly rental regimes: Weak tenant protections and limited social housing push households into homeownership, where many become “defensive speculators”—buyers who take on higher debt assuming prices will keep rising.
The effect is clear: Countries with lower property taxes see much bigger swings in house prices—about 1.85 percentage points more each year for every step-up in speculation-friendly policies. Social housing, rent control and tenancy protections, on the other hand, are associated with more stable house prices and fewer booms and busts.
The study also shows that, contrary to conventional wisdom, the availability of mortgage credit is not the main driver of housing volatility.
While credit elasticity can amplify cycles, it does not explain why some countries experience more severe booms and busts. Housing supply elasticity—the ability to build quickly in response to demand—does dampen cycles, but its effect is modest compared to speculation-friendly institutions. The authors warn that these cycles have broader consequences.
Co-author Professor Engelbert Stockhammer said, “Rising house prices boost consumption and investment, often underpinning finance-led growth models. But when the bust comes, deleveraging drags down demand and can trigger prolonged stagnation.”
For policymakers, the message is clear: Housing volatility is not inevitable. It is shaped by choices on taxation and rental regulation.
“Institutions are not just anchors of stability,” says Dr. Tippet. “They can also be destabilizing. However, on the positive side, a regime with high capital gain tax, public housing and rental protections comes with more stable growth.”
More information
Engelbert Stockhammer et al, What goes up, must come down: speculation-encouraging institutions and house price cycles across countries, Socio-Economic Review (2026). DOI: 10.1093/ser/mwaf087
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