Abstract
The copper price is a leading indicator of real estate activity. Price increases are statistically related to increasing numbers of applications for residential building permits. However, this reciprocity is not instantaneous as permit numbers lag price rises by 9 to 10 months. This dynamic is implicit in various transmission channels: from the first effects on investment plans and demand for durable goods due to better expectations from investors and consumers to the real impact of higher copper revenues on the economy’s aggregate production and demand (multiplier or second-round effect). In this paper, we proposed the impulse-response functions of a vector autoregressive model to capture the dynamic between the copper price and house building permits. Therefore, it would be expected that the recent copper price increase will boost construction and real estate activity. The effects could materialize this year and extend into early 2022.
Highlights
The international copper price has tended to rise sharply since the end of 2020, consistent with improved global economic prospects
The world’s main copper deposits are in north Chile, in the Antofagasta Region, so increased mining activity could be reflected in potentially higher demand for real estate—similar to what was observed during the 2011 mining boom, when the copper price averaged USD 4/pound (Cámara Chilena de la Construcción 2011)
Real estate investments account for a third of construction investments and represent 22% of the national total
Summary
The international copper price has tended to rise sharply since the end of 2020, consistent with improved global economic prospects. The world’s main copper deposits are in north Chile, in the Antofagasta Region (see Figure 1), so increased mining activity could be reflected in potentially higher demand for real estate—similar to what was observed during the 2011 mining boom, when the copper price averaged USD 4/pound (Cámara Chilena de la Construcción 2011). During 2011 it was observed that the increase in new hires in the mining sector and higher household income closely tracked with mining activity, resulting in higher housing demand, mainly in that part of the country. This development could be partially explained by workers’ preference to live near the workplace
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