Bubbles on the Steppe: Intrinsic Bubbles and Credit Expansion in Kazakhstan's Real Estate Market

Abstract

This paper uses high frequency aggregate housing price data from 2000 through 2017 for the minerals-rich former Soviet republic of Kazakhstan to explore price movements during boom and stagnation cycles. Kazakhstan experienced staggeringly rapid housing price growth at the outset of this period, when real prices for existing housing rose more than ten-fold in a seven-year period. Despite this rise (and subsequent decline by roughly one-third), it appears that bubble components as variously measured were small for new housing, and largely limited to 2002-04. A far larger bubble appears for sales of existing units, but unrecorded renovation expenditures may be pushing this term up. However, co-movement with vast credit expansion leads us to conclude that there is not enough evidence to support the rational speculative bubble model in Kazakhstan during 2000-2017, but we do find evidence for a policy-induced boom. What was not small was the huge rise in real housing wealth (and its likely contribution to aggregate demand) or the roughly 40% rise in housing stock that occurred during 2003-15. We conclude that credit expansion, housing wealth, and housing construction are far more important at least to a class of upper-middle-income countries than is generally appreciated.