Regional Development of Residential and Commercial Real Estate in Poland and the Risk of Real Estate Cycles

Abstract

The property market is local and thus regional factors have a very important impact on its evolution. However, global factors also have an impact. This paper explains that fast economic growth can lead to strong cycles in the market and also cause problems for the stability of the economy. With a case study of the housing market in Warsaw we show that very different economic and regulatory factors can create cycles which look quite similar at first sight. We conclude that one needs to understand the fundamentals of a given cycle to be able to smooth it. The main driver of the cycle in Poland is the significant shortage of housing units, and thus people react very strong to any possibility of improving their living conditions. Rises in income or declines of mortgage costs trigger a demand boom, while the supply side is constrained by regulations and increasing construction costs. The excessive demand leads to quite strong cycles which could be smoothed with a large amount of rental housing.