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Regional house prices An application of a two‐equation model to the Swedish housing market

Regional house prices An application of a two‐equation model to the Swedish housing market Purpose – The aim of this study is to investigate why housing prices differ between regions, and to estimate the speed‐of‐adjustment. Design/methodology/approach – A variety of factors explains the differences in the prices of single‐family houses. Changes in disposable income over time and across regions as well as the cost of capital are important determinants. The model is based on a DiPasquale and Wheaton model where the developments of the house prices are a function of macroeconomic factors such as economic growth, changes in employment and interest rate. It is estimated on a two‐equation error correction model: first, the long‐run price equation and, second, a short‐run price model. Findings – The estimates suggest that the speed‐of‐adjustment ranges from 16 to 78 per cent (around 50 per cent on average) depending on the region. In regions with a low population density, higher price adjustment rates are observed. Moreover, the speed‐of‐adjustment is higher in an upturn economy than in a downturn reflecting that negative housing stock adjustments is much slower than positive adjustments. Originality/value – The main contribution is that the speed‐of‐adjustment to the long‐run equilibrium price for 21 regions is estimated instead of at a national level and, furthermore, cyclical asymmetry in responses is tested and such differences are found. It is estimated that the rate of adjustment to long‐run equilibrium price varies considerably between regions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Housing Markets and Analysis Emerald Publishing

Regional house prices An application of a two‐equation model to the Swedish housing market

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Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
1753-8270
DOI
10.1108/17538270810861148
Publisher site
See Article on Publisher Site

Abstract

Purpose – The aim of this study is to investigate why housing prices differ between regions, and to estimate the speed‐of‐adjustment. Design/methodology/approach – A variety of factors explains the differences in the prices of single‐family houses. Changes in disposable income over time and across regions as well as the cost of capital are important determinants. The model is based on a DiPasquale and Wheaton model where the developments of the house prices are a function of macroeconomic factors such as economic growth, changes in employment and interest rate. It is estimated on a two‐equation error correction model: first, the long‐run price equation and, second, a short‐run price model. Findings – The estimates suggest that the speed‐of‐adjustment ranges from 16 to 78 per cent (around 50 per cent on average) depending on the region. In regions with a low population density, higher price adjustment rates are observed. Moreover, the speed‐of‐adjustment is higher in an upturn economy than in a downturn reflecting that negative housing stock adjustments is much slower than positive adjustments. Originality/value – The main contribution is that the speed‐of‐adjustment to the long‐run equilibrium price for 21 regions is estimated instead of at a national level and, furthermore, cyclical asymmetry in responses is tested and such differences are found. It is estimated that the rate of adjustment to long‐run equilibrium price varies considerably between regions.

Journal

International Journal of Housing Markets and AnalysisEmerald Publishing

Published: Apr 4, 2008

Keywords: Housing; Prices; Modelling; Sweden

References