Is a Bubble Inflating on Poland’s Housing Market? (Czy na polskim rynku mieszkaniowym narasta bańka cenowa?)

Abstract

English Abstract: The year 2019 brought double-digit growth in Polish housing prices, for both new and existing homes. In some cities, real prices for residential real estate have reached the highest levels in history, even higher than at the peak of the boom in 2008. As a result, some are saying that there is a growing price bubble. But thus far no research has been produced that would comprehensively verify this hypothesis on the basis of data from 2006-2019. This work aims to fill that gap. This is exceptionally important, because assessing the likelihood that a housing price bubble is emerging is key for the conduct of monetary and macroprudential policy in Poland. Because if we’re really dealing with growth in macroeconomic imbalances, then taking pre-emptive action to limit further price growth and prepare the economy (including the financial sector) for a potential collapse in housing prices is essential for limiting fluctuations in growth. The first problem that must be addressed in any analysis is the question of defining a price bubble, because in the literature there are various interpretations. Some say this phenomenon never happens, and others assume that price bubbles can inflate even when investors are behaving completely rationally. There are also some interpretations that are based in behavioral psychology and assume that a speculative bubble is the result of irrational, excessively optimistic expectations by buyers about future prices. Still other researchers of imbalances on the asset market don’t even get into the nature of price bubbles, defining them as excessive growth in prices to a level that can’t be maintained over the long term. For the needs of this research, I’ll adopt a hybrid definition, which brings together the conclusions of various streams in research: “A price bubble is a three-phase phenomenon that reflects growing imbalances on the asset market. While it lasts, there is relatively quick growth of prices to a level that can’t be maintained in later periods. In the first phase, the price growth is the result of changes in fundamental factors. In the second, the growth results from irrational exuberance sustained by a feedback loop. In the third, as a result of changes in fundamental factors, a relatively fast drop in asset prices occurs.” (Czerniak and Witkowski, 2016). The second problem related to determining whether we’re dealing with a price bubble or not is choosing the right tools for measurement. In the literature, many indicators have already been proposed as allowing the identification of price bubbles – from basic statistical analysis through complicated econometric and non-parametric models (ECB, 2010), including so-called early warning systems (EWS). But all of them are to a certain degree unreliable, as a statement by Visco (2005) remains valid: a price bubble can be recognized only once it bursts. That’s why it’s impossible to state with complete certainty that we’re facing this phenomenon in Poland at the moment (Gurkaynak, 2008). However, we can examine the likelihood that a bubble will develop, and assess whether the current macroeconomic and institutional situation in Poland encourage this, or the opposite. Thus, in this research I present a range of metrics of whether housing price bubbles are occurring. In the first section, I will discuss the results of applying purely statistical tools for identifying bubbles on the Polish housing market; in the second I present metrics of this phenomenon based on data concerning fundamental factors shaping housing prices in Poland. Separately, in the fourth part I will discuss access to cheap money for investment purposes. The article closes with a summary in which I juxtapose the conclusions arising from calculating various metrics of the occurrence of price bubbles on the Polish housing market. On this basis I formulate recommendations for economic policymakers, and I also propose directions for further research on this phenomenon in Poland. Polish Abstract: Rok 2019 przyniosl w Polsce dwucyfrowe wzrosty cen mieszkan i to zarowno na rynku pierwotnym, jak i na rynku wtornym. W niektorych miastach realne ceny nieruchomości mieszkaniowych osiągnely najwyzszy poziom w historii, nawet powyzej szczytu boomu z 2008 r. W rezultacie pojawily sie opinie, ze mamy do czynienia z narastaniem banki cenowej. Jednakze do tej pory nie zostaly opublikowane zadne badania, ktore w sposob kompleksowy, na podstawie dostepnych danych za lata 2006-2019 zweryfikowaly te hipoteze. Niniejsze opracowanie ma na celu uzupelnienie tej luki. Jest to niezmiernie wazne, poniewaz ocena prawdopodobienstwa narastania banki cenowej na rynku mieszkaniowym jest kluczowa z perspektywy prowadzenia polityki pienieznej i makroostroznościowej w Polsce. Jezeli bowiem faktycznie mamy do czynienia z narastaniem nierownowagi makroekonomicznej, to podjecie wyprzedzających dzialan ograniczających dalszy wzrost cen i przygotowujących gospodarke, w tym takze sektor finansowy, na ewentualne zalamanie cen na rynku mieszkaniowym, jest konieczne z punktu widzenia ograniczenia potencjalnych silnych wahan koniunktury.