University of Groningen, Department of Economic Geography On real cash flow, credit availa- bility, and Asset price inflation Dennis Schoenmaker and Arno van der Vlist

Motivation Office market crisis Drop in M2 Rental Credit influx Asset Value way to high Credit available

Aim & Contribution 1) Credit availability, Asset prices, and Rental price Dynamics. – Ling et al, 2011 – Hendershott et al, 2010 – Englund et al, ) Whereas most contributions use appraisal based data, we use transaction based data for the asset and rental market.

Review of Literature Rental value M2 RED Asset Price M2 Stock D = S III IIIIV PRICE = RENT/ cap-rate P = f(M2 RED) ΔS = M2 RED –δS I = Space Market / Rent determination II =Assetmarket/ Asset price determination III =Assetmarket / Construction IV =Space Market / Supply response Rent dynamics Credit and Asset prices Englund et al 2008 Hendershott et al 2010, 2002, 1999 Jennen, 2008 Wheaton et al., 1994, 1997 Ling et al 2011 Brunnermeier, 2009

Asset price: 1) Chen (2001) found that availability of bank loans are significant in predicting movements in real estate assets (Taiwan). 2) Ling, et al (2011) found that credit availability is a significant determinant of Asset prices. Rent Dynamics: 1) Hendershott, et al (2010) found that the stock and office employment are significant determinants of the rent (London office market). 2) Brounen and Jennen (2009) found that the vacancy rate and office employment are significant determinants of the rent (Ten European Cities). Review of Literature (1)

Data sources, definitions, and descriptives Table 1- Data N x T = 17 x 12

Time series

Time series (1)

Correlation matrix

Empirical model Simultaneous equation model:

Time series test * Based on this outcome and the co-integration outcome we perform the empirical model (1) and (2).

Results Table 4 - Estimation results for the dynamic rent model, corrected LSDV estimates ***, and ** denote significance at the 1 percent, and 5 percent levels, respectively.

Table 5 - Estimation results for the dynamic asset model, corrected LSDV estimates Results (1) ***, and ** denote significance at the 1 percent, and 5 percent levels, respectively.

Conclusion + future research Main findings: 1) Credit availability is an important determinant of Asset price, whereas the Rent is also an important determinant. Furthermore, rising asset price not related to rising rents can be described as asset price inflation. 2) The rent equation gives similar outcomes as the Hendershott and Brounen/Jennen approach. Furthermore, we find higher price elasticities because of the markets we include in the model, the income elasticity is almost equal. Further research: * Incorporation of measures of transaction activity as proposed in Ling et al. (2009) to measure regional market liquidity.