On the long run relationship between industrial construction and housing

Abstract

Most empirical analysis of property development treats the subcomponents of the construction industry as independent. For example, models of housing construction typically do not consider any relationship with industrial or commercial construction. In fact, there are a number of ways in which changes over time may be interdependent. For example, economic theory suggests that, under some conditions, housing investment crowds out industrial and commercial investment. In general, therefore, if there are interdependencies, the presumption is that the relationship is negative. Here the relationship between new housing and industrial construction is concentrated on. It is found that, in the long run, based on Johansen tests for Britain since the sixties, the relationship is positive - movements are complementary. At first sight, this result is counter-intuitive, at least in an aspatial setting. But, in a spatial setting, the results are consistent with the view that (i) 'jobs move to workers' as relocating firms seek out highly skilled workers who, in turn, search for high quality housing locations; (ii) particularly in SE England, which has a high rate of new firm formation, fast growing new firms are started by high potential entrepreneurs close to where they live. Therefore, new housing and industrial development are self-reinforcing.