Untangling the nonlinear “knots” of UK’s housing prices

Untangling the nonlinear “knots” of UK’s housing prices PurposeHousing prices in the UK offer an inspiring, yet a complex and under-explored research area. The purpose of this paper is to investigate the critical factors that affect UK’s housing prices.Design/methodology/approachThe authors utilize the recently developed nonlinear ARDL approach of Shin et al. (2014) over the period 1969–2016.FindingsThe authors find that both the long-run and short-run impact of the price-to-rent (PTR) ratio and credit-to-GDP ratio on house prices (HP) is asymmetric whilst ambiguous results are established for mortgage rates, industrial production and equities. Apart from the novel framework of analysis, this study also establishes a positive association between HP and the PTR ratio which suggests a speculative behaviour and could imply the formation of a housing bubble.Originality/valueIt is the first study for the UK housing market that explores the underlying fundamental relationships by looking at nonlinearities hence, allowing HP to be tied by asymmetric relationships in the long as well as in the short run. Modelling the inherent nonlinearities enhances significantly the understanding of UK housing market which can prove useful for policymaking and forecasting purposes. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Studies Emerald Publishing

Untangling the nonlinear “knots” of UK’s housing prices

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0144-3585
DOI
10.1108/JES-06-2018-0222
Publisher site
See Article on Publisher Site

Abstract

PurposeHousing prices in the UK offer an inspiring, yet a complex and under-explored research area. The purpose of this paper is to investigate the critical factors that affect UK’s housing prices.Design/methodology/approachThe authors utilize the recently developed nonlinear ARDL approach of Shin et al. (2014) over the period 1969–2016.FindingsThe authors find that both the long-run and short-run impact of the price-to-rent (PTR) ratio and credit-to-GDP ratio on house prices (HP) is asymmetric whilst ambiguous results are established for mortgage rates, industrial production and equities. Apart from the novel framework of analysis, this study also establishes a positive association between HP and the PTR ratio which suggests a speculative behaviour and could imply the formation of a housing bubble.Originality/valueIt is the first study for the UK housing market that explores the underlying fundamental relationships by looking at nonlinearities hence, allowing HP to be tied by asymmetric relationships in the long as well as in the short run. Modelling the inherent nonlinearities enhances significantly the understanding of UK housing market which can prove useful for policymaking and forecasting purposes.

Journal

Journal of Economic StudiesEmerald Publishing

Published: Aug 29, 2019

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