Spatial analysis of real estate price bubbles: Paris, 1984–1993

Abstract

The Paris housing price bubble that started around 1984 came to a burst in 1990–1991. In order to get insight into the spatial mechanism of speculative bubbles, we examine this episode at the level of the twenty districts composing Paris intra-muros. The analysis is carried out in two steps. First, we empirically describe the price movements in the different districts. Prices in the best areas are seen to peak first and by and large to decrease in proportion to their former increase. Our second objective is to characterize each district in terms of the relative strength of speculative trading versus price–supply inelasticity. We show that the various price trajectories can fairly well be described in the framework of a partial equilibrium model which stylizes the behaviour of the different kinds of agents in the market. The model thus provides a classification of the districts in terms of speculative trading intensiveness versus supply inelasticity.