Regional house price cycles in the UK, 1978-2012: a Markov switching VAR

PurposeThe study looks at the characteristics of upswings and downswings for UK housing cycles. Specifically, the purpose of this paper is to empirically analyse cycles in house prices and housing affordability on the characteristics of persistence, magnitude and severity.Design/methodology/approachThe paper draws upon the triangular methodology of cycles and utilises housing data from the last three decades.FindingsFrom an empirical perspective, the study obtained four main results. First, the graphical trajectory of cycles in house price and housing affordability is highly synchronized. Second, upturns in both cycles tend to be longer than downturns on average. Third, the recent upturn in house prices and housing affordability is characterised by larger duration, magnitude and severity than the earlier case. Fourth, the latest downturn in both cycles is highly synchronised in terms of time occurrence, persistence, magnitude and severity; in addition, in both cases, the latest downturn is considerably smaller than the previous one. The study additionally indicates that on average the length of a complete house price and housing affordability cycle is 19 years on a peak-to-peak basis.Research limitations/implicationsThis paper is essentially exploratory and raises a number of questions for further investigation. Future research should, first, arrive at a more nuanced definition of affordability and, second, examine causality. The fact that two phenomena appear to have some significant synchronicity is not an indication that they are interdependent, although logic would suggest they might be.Originality/valueThis is among the few papers that analyses cycles in UK house prices. It is the first study that draws attention to the housing affordability cycle and the first to compare cycles in house prices with cycles in housing affordability.

Institute of University of I ' Business and California at I Economic Research Berkeley FISHER CENTER FOR REAL ESTATE AND URBAN ECONOMICS WORKING PAPER SERIES WORKING PAPER NO. 84-83 THE INTERJURISDICTIONAL EFFECTS OF GROWTH CONTROLS ON HOUSING PRICES L By These papers are preliminary in nature: their purpose is to - stimulate discussion and LAWRENCE KATZ comment. Therefore, they . KENNETH T_ ROSEN are not to be cited or quoted in any publication without the ex- press permission of the author. WALTER A. HAAS SCHOOL OF BUSINESS _

Housing is a major component of wealth. Since house prices fluctuate considerably over time, it is important to understand how these fluctuations affect households' consumption decisions. Rising house prices may stimulate consumption by increasing households' perceived wealth, or by relaxing borrowing constraints. This paper investigates the response of household consumption to house prices using UK micro data. We estimate the largest effect of house prices on consumption for older homeowners, and the smallest effect, insignificantly different from zero, for younger renters. This finding is consistent with heterogeneity in the wealth effect across these groups. It suggests that as the population ages and becomes more concentrated in the old homeowners group, aggregate consumption may become more responsive to house prices. In addition, we find that regional house prices affect regional consumption growth. Predictable changes in house prices are correlated with predictable changes in consumption, particularly for households that are more likely to be borrowing constrained, but this effect is driven by national rather than regional house prices and is important for renters as well as homeowners, suggesting that UK house prices are correlated with aggregate financial market conditions.

China has been undergoing significant social and economic structural changes since launching its policy of economic reform and opening up in 1978. This has involved a transformation from a centrally planned economy, where there is no role for the market, to a market-oriented economy in which market principles play a major role. During the last four decades, great achievements have been made in terms of economic growth and social well-being. To name a few indicators: the Gross Domestic Product (GDP) of the country increased from USD 189.65 billion in 1980 to USD 10.866 trillion in 2015, positioning China as the second largest economy in the world, with an average annual growth rate over 10%. Meanwhile, poverty levels have greatly improved. The poverty headcount ratio at USD 1.90 a day (2011 PPP) has decreased dramatically, from 42.15% in 1981 to 10.68% in 2013. The rapid economic growth, combined with the reform of the Hukou registration system, has also accelerated the migration flow from rural areas to urban areas. The population living in urban China in 2015 reached 763 million, making the urbanisation level of 55.61%, almost three times that in 1980. With the rapid growth of the urban population, the welfare-based public housing provision system founded in the central planning era could no longer meet the increasing housing demand of urban residents. Thus, in 1994, comprehensive housing reforms were implemented, aiming to privatize the public housing sector and promote a housing allocation system based on market principles. The milestone of housing reform occurred in 1998, when the government completely suspended the traditional housing allocation system, making the housing market the only way to access housing services (Wang et al. 2012). The emergence of the private urban housing market spurred both housing transactions and prices. In 1998, the housing area traded on the market was approximately 108 million square metres on an average transaction price of 1854 yuan/m2. These two figures were nearly ten and three times higher in 2014, soaring to 1.05 billion square metres and 5933 yuan/m2, respectively. At the regional level, rapid economic development has been accompanied by increasing inequality. Soon after the launch of the economic reforms, some coastal regions, Guangdong and Zhejiang in Eastern China, for example, grew quickly, due to the influx of foreign direct investment (FDI), advanced technologies and equipment, and favourable policies of the central government. The ‘core’ position of these regions in the national economy was further enhanced through a self-reinforcing process (Anderson 2012, p.127), shaping a core-periphery economic structure in China. In 1980, the regional gross product of Eastern China accounted for 43.69% of total GDP in China, while in 2014 this ratio increased to 51.16%, reflecting the polarization of economic activities. Reflecting the distribution of economic activities, the inequality in the cost of housing between regions is also striking. In 2014, the average sale price in 35 main cities in mainland China was approximately 8599 yuan/m2, with the standard error also high, at 4651 yuan/m2, making the coefficient of variance 0.54, thus indicating a high degree of heterogeneity across this city-level housing market. The left panel of Figure 1.1 shows the spatial distribution of average house prices. It is apparent that the prices in the coastal cities of Eastern China are generally greater than the prices of inland cities. However, the picture of house price dynamics is a little different. From 2002 to 2014, the rapid growth in house prices, on average 11.38% per year, seems to be anational phenomenon and there is very little variance between the annual growth rates in different cities; the coefficient of variance is only 0.18, much lower than that of the house price level. Perhaps the most prominent spatial pattern of house price growth rate is that the northeastern cities experienced the lowest price appreciation during the period 2002-2014. This dissertation is fundamentally concerned with the spatial patterns of house prices and their dynamics across cities in China. Although literature on the Chinese housing market has been emerging in recent years, little is known about the spatial interaction of regional housing markets. The following four chapters will be dedicated to responding to questions concerning the emerging market: Why is there a core-periphery structure in the distribution of interurban house prices? To what extent are the house price developments across cities similar? How do house price dynamics in one city affect the house price changes in other cities? The investigation of the spatial dimension of the Chinese housing market has been always hampered by the quality of the data, especially when analysing house price dynamics. This situation has inspired the pursuit of research to construct house price indexes that reflect the house price changes as accurately as possible. In line with a key theme of this study, particular a

Housing is a major component of wealth. Since house prices fluctuate considerably over time, it is important to understand how these fluctuations affect households' consumption decisions. Rising house prices may stimulate consumption by increasing households' perceived wealth, or by relaxing borrowing constraints. This paper investigates the response of household consumption to house prices using UK micro data. We estimate the largest effect of house prices on consumption for older homeowners, and the smallest effect, insignificantly different from zero, for younger renters. This finding is consistent with heterogeneity in the wealth effect across these groups. In addition, we find that regional house prices affect regional consumption growth. Predictable changes in house prices are correlated with predictable changes in consumption, particularly for households that are more likely to be borrowing constrained, but this effect is driven by national rather than regional house prices and is important for renters as well as homeowners, suggesting that UK house prices are correlated with aggregate financial market conditions.

Housing is a major component of wealth. Since house prices fluctuate considerably over time, it is important to understand how these fluctuations affect households’ consumption decisions. Rising house prices may stimulate consumption by increasing households’ perceived wealth, or by relaxing borrowing constraints. This paper investigates the response of household consumption to house prices using UK micro data. We estimate the largest effect of house prices on consumption for older homeowners, and the smallest effect, insignificantly different from zero, for younger renters. This finding is consistent with heterogeneity in the wealth effect across these groups. In addition, we find that regional house prices affect regional consumption growth. Predictable changes in house prices are correlated with predictable changes in consumption, particularly for households that are more likely to be borrowing constrained, but this effect is driven by national rather than regional house prices and is important for renters as well as homeowners, suggesting that UK house prices are correlated with aggregate financial market conditions.

Inter-regional rail travel and housing markets connectedness between London and other regions

Do regional house prices converge? Evidence from a major developing economy

PurposeThe purpose of this paper is to examine the house market in Malaysia from 2002 to 2015. Specifically, the macroeconomic determinants on the house price and house demand are investigated.Design/methodology/approachStructural Vector Autoregressive Regression was adopted to estimate the unexpected changes in both house demand (residential transaction volume) and prices based on economic theoretical reasoning that consider shock from macroeconomic determinants.FindingsThe transaction volume and real house prices respond to most of the macroeconomic shocks. While the impact of real gross domestic product (GDP) on house prices appears to be stronger and longer in comparison to other macroeconomic shocks, a 60 per cent change in house prices can be explained by real GDP regardless of whether it is in the short run or the long run. The studies also reveal that a positive effective exchange rate plays an important role when demonstrating the transaction volume. Moreover, monetary liquidity plays a major role in justifying the transaction volume. This implies that mortgage lending may have an impact on housing demand. Meanwhile, movements of house prices cannot be explained by the demand in quantity. This signifies that supply has a strong influence in determining the price.Research limitations/implicationsThis study has implications on policymakers of which the interest rate as a cooling measure might not be effective in the short run. The interest rate has very little impact on housing prices. Furthermore, policymakers should address the concerns on speculations, as the results reveal that monetary liquidity and the exchange rate have a strong impact on the housing demand.Originality/valueThis study seeks to provide answers regarding the recent upsurge of Malaysian housing prices. Besides focusing on the house price changes, this study addresses the role of transaction volume while evaluating the house market, as housing prices are usually downwards rigid. Since the price and transaction volume are both related to the transaction activity, this study is significant and could be a good reflection on the actual demand behaviour in the residential market.

This paper identifies the expansion and contraction phases of New Zealand's national and regional house prices, by employing techniques typically used to study cycles in real activity, the so-called Classical cycle dating method. We then enquire into the nature of the cycles, addressing five questions: (1) What are the New Zealand and regional house price cycles, and do the regional cycles differ from the national cycle?; (2) What are the typical durations, magnitudes and shapes of these house price cycles?; (3) Do cycles in house prices match cycles in economic activity, at either national or regional levels?; (4) Does it matter which of the two main sets of house price series are used? i.e. Quotable Value New Zealand (QVNZ) or Real Estate Institute of New Zealand (REINZ)?; and (5) Does the sample period matter? Findings are evaluated in the context of work by Grimes, Aitken and Kerr (2004), and Hall and McDermott (2005). Avenues for further research are suggested.

The Ups and Downs of New Zealand House Prices

The Spatial Dimension of House Prices

The economic reform in China, launched in the late 1970s, gradually promotes the free mobility of capital and labour between rural and urban areas, and between cities. The following housing market reform in the late 1990s thoroughly terminates the socialist allocation of housing and introduces market forces into the housing sector. Such institutional shifts have profound effects on the evolution of the Chinese interurban housing market. Yet, little is known about the spatial behaviour of house prices across cities in the post-reform era. How do the housing markets of different cities organise across space? What is the relationship between the house price dynamics of different cities? To answer these questions, this research performs economic and econometric analysis of the spatial dimension of the Chinese interurban housing market. In addition, this research also concerns the construction of a reliable house price index in the presence of spatial heterogeneity and dependence in the urban housing market of China. A reliable house price index is essential to the analysis of house price dynamic behaviour. However, owing to the data problem, this part is conducted based on the housing market of a Dutch city. This research discovers the spatial regularities of house prices across Chinese prefecture cities in an economic common area and investigates the underlying formation process. It reveals an uneven distribution of house prices across cities, with those large and/or higher-tier cities and their neighbours having significantly higher house prices. Such an uneven pattern of house prices demonstrates the agglomeration spillovers in the interurban housing market. Two forms of spillovers are empirically examined. The first is the urban hierarchy distance effect, which is related to the position of a city in a hierarchical urban system. In general, the distance penalty of higher-tier urban centres is confirmed, that is, all else being equal, the further away a city is from the higher-tier city, the lower the house price. The second form of spillovers relates to a city’s position in a city network system, in which no hierarchical structure is imposed. In such a situation, the spillovers arise from the interaction with neighbouring cities and it is found that a city that has larger neighbours tends to have higher house prices. These two forms of spillovers are somewhat correlated with each other because a higher-tier city is always associated with a larger urban size. It is argued that the spillovers in the interurban housing market work through two channels: the productivity and amenity channel. First, because of the economies of agglomeration, a location that has good access to large urban concentrations is likely to enjoy some productivity advantages and thus can bear higher house prices. Second, a location that is surrounded by large urban concentrations can easily get access to some unique amenities that need a large market potential to survive; households value such access and thus bid up the house price there. However, it seems that the role that the productivity channel plays is much more important than the role of the amenity channel. In addition to the static distribution of house prices across space, this research also concerns the time series behaviour of house price dynamics across Chinese cities. Geography plays an important role in explaining the cross-city differences of house price dynamics. For the housing markets of major cities across the whole of China, the cluster analysis generally uncovers two relatively homogeneous groups, within which the house price growth series share a similar dynamic pattern. One cluster contains mainly the cities in the undeveloped central, western and northeast China, whereas the other is composed of the most important economic centres in eastern China. However, the spatial segregation of housing markets is more likely to occur in the most recent period. In the early period before 2010, the house price dynamics of cities are much more homogeneous. The similarities and/or dissimilarities among house price dynamics of different cities indicate the complicated interrelationships between each of the markets. This research further examines various spatial interrelationships between the housing markets of an economic common area in south China. The spatial causal relationships between housing markets are first tested by the Granger causality test. The results reveal a complicated pattern, but it can be tentatively confirmed that house price changes in the developed eastern-central markets ‘cause’ the house price dynamics in the less-developed western markets. Then a spatial-temporal model is built to depict the diffusion pattern of house prices between markets. In general, a shock given to the house price of a certain market gradually spreads to its neighbouring cities. However, the interurban housing market can hardly remain an equilibrium relationship in the long-run, that is, it tends to be divergent. The last part of this research concerns the treatment of spatial effects in the hedonic house price model as well as its influence on the construction of hedonic imputation indexes, which measure the pure house price changes over time. It is argued that the value of a dwelling can be split into the value of the land and the value of the structure, and that the value of the location characteristics of a dwelling is capitalised into the price of the land. Thus, land prices can be expected to vary significantly across space. Indeed, the mixed geographically weighted regression framework adopted in this research, which allows the shadow price of structure to be constant across space and the implicit price of land to be property-based, is found to be superior to, in terms of model prediction, those models that restrict the spatial variation of land prices. Nevertheless, the Fisher imputation house price index based on the most sophisticated model is almost identical to those based on the simple specifications. The land and structure price indexes, on the other hand, are sensitive to the treatment of location in land prices. This research underlines market forces in the operation of Chinese interurban housing markets in the post-reform era, and contributes to the understanding of spatial dimension of house prices, not only in China, but also in other market-oriented economies.

This paper studies the cyclical properties of real GDP, house prices, credit, and nominal liquid financial assets in 17 EU countries, by applying several methods to extract cycles. The estimates confirm earlier findings of large medium-term cycles in credit volumes and house prices. GDP appears to be subject to fluctuations at both business-cycle and medium-term frequencies, and GDP fluctuations at medium-term frequencies are strongly correlated with cycles in credit and house prices. Cycles in equity prices and long-term interest rates are considerably shorter than those in credit and house prices and have little in common with the latter. Credit and house price cycles are weakly synchronous across countries and their volatilities vary widely - these differences may be related to the structural properties of housing and mortgage markets. Finally, DSGE models can replicate the volatility of cycles in house and equity prices, but not the persistence of house price cycles.

Real and Financial Cycles in EU Countries - Stylised Facts and Modelling Implications