House price developments in Sweden : The role of fundamentals

Abstract: House prices in Sweden have been increasing at an unprecedented pace since the mid-1990s. In this study, I examine the main causes behind this increase. Specifically, if the increase in house prices can be explained by movements in so-called fundamental factors. To study these relationships, I deploy a Dynamic Ordinary Least Squares (DOLS) approach. In addition to newer evidence, I also examine the effect of the reduced property tax in 2008 onhouse prices. The model suggests that the development in the fundamental factors explain the increases in house prices very well. The model indicates negative effects of the property tax pre-2008; however, no indication of capitalization effects of the change in the tax into prices was found.