Housing prices: An empirical analysis of the determinants of the price level in the metropolitan area of Helsinki

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Abstract
The paper examines the relative importance of various factors affecting the housing price level in the Helsinki area in the 1970s and the early 1980s. The demand for housing stock is modeled along the lines of simple consumer choice theory. The supply is taken exogenous in the short run. The empirical results suggest, with some reservations, that demographic factors, particularly net migration, have been behind the major swings in the real price of housing. Additionally, the availability of credit has been of importance in the short run. In the long run, new completed units have put downward pressure on the price level. In contrast with many other studies, income does not appear to be an important factor. This may, though, be more a result of data deficiency than the true state of affairs. In spite of the rather good performance of the model in explaining price developments in the 1970s, the model falls seriously short of accounting for the continued rise of the price level in 1982 and 1983. This underlines the need for further work in this area.

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