Abstract
This paper studies U.K. regional house prices across nine regions from January 2005 to December 2017 to identify regional versus national effects on house prices and potential house price bubbles. It uses a version of the Gordon dividend discount model, modelling house prices as the present value of imputed rents as a measure of fundamentals. It differentiates between long-term and short-term effect using pooled mean group (PMG) and mean group estimation (MG) to determine variations in regional house prices during different periods relating to the most recent financial crisis. The results confirm that the crisis had differentiating effects in the short term, but there is reversion back to long-run fundamentals. Regional trend analysis shows that the house price growth in the regions has been affected differently in the short run and each region has varying long-run fundamentals. Residential property values in London have shown strongest short-run momentum.
Highlights
Ten years after the global financial crisis (GFC) of 2008/2009, the U.K. housing market recovered and has been experiencing another boom period until 2017
Breaking down the periodand based the financial and if these canthat be classified as residential change away from long-run fundamentals, resulting term crisis, we find the variable mortgage rate significantly positively relatesintoshort rent to price effects that potentially lead to house price bubbles
A house price bubble is defined as a change in the properties of deviations of actual house price growth from its fundamentals, which come from estimates of house price growth as a function of lagged responses to the present value of expected future rent
Summary
Ten years after the global financial crisis (GFC) of 2008/2009, the U.K. housing market recovered and has been experiencing another boom period until 2017. This has resulted in an increasing debate regarding a new house price bubble and the impact on regional economies in the United Kingdom. Kingdom at the regional level and test whether or not a house price bubble does exist within the regions. For the purposes of this research, we define a bubble as the deviation of expected house price growth based on fundamentals from actual observed house price growth. We define house price growth as a function of lagged responses to the present value of expected future cash flows (imputed rents)
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