Detecting housing bubble in Poland: Investigation into two housing booms

Abstract

The paper investigates the potential house price bubble in 18 provincial capital cities in Poland from 2000 to 2022. This is the first comprehensive effort to examine the house price exuberance throughout two housing market cycles (2000–2013 and 2014–2022, respectively). Additionally, we evaluate the risk of the housing bubble during a volatile era when the housing market in Poland was exposed to significant external shocks connected to COVID-19.In the study, we apply the new generation of recursive housing bubble identification procedures developed by Phillips, Shi and Yu (2015) and test whether the explosive behaviour of house prices in Polish cities was linked to household incomes and rents. Using the Error Correction Model, we also checked whether house prices were linked to fundamentals.In general, we observed explosive behaviour of house prices during the 2006–2007 period, which is not justified by fundamentals in all cities examined. The length and precise timing of the bubble phases varied amongst regional cities. Despite this, the findings are consistent with earlier data from other nations, which adds credence to the idea that the 2007 housing bubble was a worldwide occurrence. Contrary to what is commonly believed and reported in the media, we have not seen any indications of irrational house price behaviour in Polish cities during the Covid-19 outbreak. Contrary to the overwhelming evidence for the house price exuberance between 2006 and 2007, we conclude that there is no solid evidence of the existence of the housing bubble in recent years.