Abstract
Against the backdrop of real estate development and rising prices, which affect the affordability of housing in Saudi Arabia, this study empirically estimates housing demand using time-series analysis from 1987 to 2016. To find the main factors affecting housing demand in Saudi Arabia, this study developed an econometric model with explanatory variables such as income level, housing prices, population growth rate, demand for loans, and consumer price index (CPI). The results show that demand for housing is inelastic with respect to price, income, and population growth rate; moreover, the price elasticity of demand is less than that of income and population growth rate, in absolute terms. A regression analysis suggests that the most significant factors that determine housing demand in Saudi Arabia are population growth rate, CPI and demand for housing loans. This study was conducted with a particular focus on the Saudi Arabian market and showed some surprising results, which are not consistent with popular economic theories. Keywords: Housing demand; Income elasticity; Price elasticity JEL Classifications : E31, E32, R21, R31 DOI: https://doi.org/10.32479/ijefi.10262
Highlights
Housing is an essential need everywhere in the world
It can be said that expected positive shocks in the GDP per capita will cause a boom that affect the construction industry and spill over into the Saudi economy. This finding concurs with several previous findings notably those reported by Ihlanfeld (1982) Poterba (1991), Moriizumi (1993), Englund and Ioannides (1997), Muellbauer and Murphy (1997), Malpezzi (1999) and Sutton (2002) who reported positive and inelastic income elasticity estimates for housing in Japan
In the last three decades, the housing market in Saudi Arabia is witnessing a huge demand for the acquisition of housing units
Summary
Housing is an essential need everywhere in the world. This sector is of importance in social, economic and financial aspects worldwide, but is especially important in developing countries due to the enormous demand for houses as a basic need and as an instrument for wealth accumulation as noted by Coşkun (2010) and OECD (2011). Investor’s and developer’s demand for land and housing sector, in general, peaked as they sought high returns which were being achieved through land trading throughout Saudi Arabia This pushed affordability beyond the reach of many new households being formed. The Saudi government is trying to respond to the housing demand by implementing public housing programs in which houses are either owned or allocated by a public body In this regard and to cater to population and economic growth, the Real Estate Development Fund (REDF) was established in the late 1970s, and it has contributed to private housing and to the construction sector in the Kingdom. The prime focus of this paper is to estimate the demand for housing in Saudi Arabia To achieve this purpose the rest of the paper is structured as follows: Section 2 is an overview presenting previous studies on the subject.
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