The purpose of this paper is to investigate the mechanism of the periodic speculation in the imperfect housing market, and the phenomenon that the price of a house is relatively too high to it's rental price.
Two important assumption in this model are speculative equilibrium in which the price of a house increases so much as to cover the decrease in rental price, and the downward rigidity of house prices. Speculative equilibrilum is the state that the capital gains obtained by the increase in house prices cover the decrease in rental price. This curious situation is possible when new housing construction is so large that the rental prices in the society decrease in the speculative process.
The downward rigidity of house prices is the phenominon that house prices do not fall even in recessions. This failure in housing markets root in the downward rigidity of land prices. In recessions, price adjustments don't appear, but quantity adjustments do. The posessors of houses are reluctant to selling their houses at the price less than the highest price in the past. New housing constructions stop and the stock of housing depriciates gradually in recession.
In the housing market which has two characteristics described above, the regulation on the housing speculation by means of the capital gain tax causes rental prices to rise and results in the more serious housing speculations.
