Detecting the Housing Price Bubble in Tehran During 1992-2009 (By Using Poterba's Model and Tobin's Q Theory)

In this study, the existence or non-existence of housing price bubble in Tehran is investigated by both econometric and graphical approaches during the period of 1992:Q2 to 2009:Q1. For this purpose, Poterba's model is combined with Tobin's Q theory, which provides us with an academic tool for analyzing the effects of supply and demand shocks on house price and also deviations from fundamental value of house price in the LR and SR.In econometric approach, by using the defined variables in Poterba's model as the effective factors on housing demand and Tobin's Q ratio as an effective criterion for housing supply, fundamental value of house price is estimated by Autoregressive Distributed Lag (ARDL) model and the residuals of ARDL model is then concerned as the "bubble component".Next, in graphical approach, by using second method of detecting price bubble namely deviation from LR average of some ratios like P/CC, P/R, P/Y and P/DM, their graphs are illustrated.The existence of two price bubbles in Tehran housing market in 1996-97 and 2007-08 is verified mainly in both methods.As well, findings show that all inflation, Tobin's Q ratio, real rent, number of households and housing stock are the determining elements of the fundamental value of house price in Tehran and these variables tend to long run equilibrium at a confidence level more than 95%.