Modelling housing market fundamentals and the response to economic and political events: empirical evidence from Kuwait

Abstract

PurposeThe purpose of this paper is to examine the sensitivity of the Kuwait housing market to major local and regional geo-political and economic events.Design/methodology/approachThis paper examines the market dynamics of the housing market in Kuwait. Kuwait provides an interesting market to consider owing to its position as a major oil producer, its sensitivity to geo-political events and its unusual demographic characteristics.FindingsThe error-correction model highlights that market is relatively volatile, with evidence of mean-reverting behaviour. Only when the data is smoothed are their more consistent findings with respect to underlying fundamentals. This paper also examines the response of the market to seven regional and local events. Of particular interest is that the one event that results in a consistent significant response is domestic legislation directly concerned with housing. This has a far greater impact than local or regional geo-political events.Originality/valueVery few papers have considered how economic and political shocks directly impact housing markets using an event study approach. Given its geographic location and also its economic dependence on oil, Kuwait is an interesting market to consider.