Inequality effects on housing prices are only temporary
He and Cava 20 – research economist at the Reserve Bank of Australia, Bachelor of Economics and Commerce at University of New South Wales; lead of the Micro Analysis and Data research team at the Reserve Bank of Australia, PhD in Economics from the London School of Economics
Calvin He and Gianni La Cava, “The Distributional Effects of Monetary Policy: Evidence from Local Housing Markets,” Research Discussion Paper, Reserve Bank of Australia, February 2020, https://www.rba.gov.au/publications/rdp/2020/2020-02.html
The differential effects of monetary policy changes on housing prices appear to be temporary. The differences across all price deciles becomes statistically insignificant beyond two years. These spatial deviations in prices are indicative of housing market frictions, as price differentials should not be observed in efficient markets. These frictions could reflect transaction costs, home bias of buyers or asymmetric information. However, the temporary nature of the price differentials suggest that the frictions dissipate over time.22