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

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 speculativ e bubbles, we examine this episode at the level of the twenty districts com posing Paris intra-muros. The analysis is carried out in two steps. First, we empirically describe the price movements in the different districts. Pri ces in the best areas are seen to peak first and by and large to decrease i n proportion to their former increase. Our second objective is to character ize each district in terms of the relative strength of speculative trading versus price-supply inelasticity. We show that the various price trajectori es can fairly well be described in the framework of a partial equilibrium m odel which stylizes the behaviour of the different kinds of agents in the m arket. The model thus provides a classification of the districts in terms o f speculative trading intensiveness versus supply inelasticity. (C) 1999 El sevier Science B.V. All rights reserved.