Determinants of Indian housing market: effects and counter-effects

2019 ◽  
Vol 38 (2) ◽  
pp. 199-218
Author(s):  
Richa Pandey ◽  
V. Mary Jessica
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Housing Market ◽  
Financial Stability ◽  
Feedback Loop ◽  
House Prices ◽  
Housing Prices ◽  
Housing Sector ◽  
Content Type ◽  
Market Shocks

Purpose The purpose of this paper is to study the effect of the 2008 global financial crisis on housing market dynamics in an emerging economy like India using quarterly data (Q4 2008–2009 to Q1 2018–2019). The study explores the extent of linkages between housing prices, monetary policy and financial stability by explaining the nature of the shocks to the housing sector and the degree of impact of those shocks; the possibility of adverse feedback loop which is beyond the natural levels; and the usefulness of explicit and direct role of monetary policy for the housing market stability, which was the loudest demand immediately after the crisis. Design/methodology/approach The paper follows a three-step methodology: data transformations, a variable selection process “general-to-specific modelling” with the help of OxMetrics 6 Package, and vector autoregressive modelling with the help of EViews 10. F-test was used to describe the short-term relationships between the variables. Impulse response and variance decomposition were used to explain the type of relationship (negative or positive) and the period of the relationships, respectively. Findings The study finds that the housing sector is sensitive to the monetary policy shocks, whereas the contribution of the housing market shocks to the fluctuations in other market variables is not substantial, though not negligible. As far as the nature of the shocks is concerned, the observed dynamics in the real house prices are diverging from their fundamental levels. The housing market shocks are more or less static; it rules out the chances for a self-reinforcing feedback loop with the existing setup. Research limitations/implications The study concludes that the observed dynamics in the real house prices are diverging from their fundamental levels. Given the limitation, the researchers could extend this study by decomposing the part of the risk to the sector contributed by the other drivers, which may be inherent imperfections in housing markets, weak and unreliable wealth effect, and the presence of behavioural biases. Practical implications The present study finds countercyclical measures to be more useful for this sector as compared to the forward-looking monetary policy reforms in this sector. The central bank in India should continue to refrain from responding directly to the housing sector fluctuations. Investors can enjoy investing in the housing sector without any fear of the crisis as of now. The effect of speculation is small but not negligible, which enjoins the investors and the policy-makers to remain watchful. Interest rate, money supply and inflation lead (Granger-cause) the housing prices. This information is relevant for spending and investment decisions. Social implications The study feels that banks should avoid using monetary policy to balance the house prices. This will be beneficial both for the economy and the society, as any change in monetary policy to especially curb out surging housing prices may adversely affect the output, and finally, may lead to the deflation. The fear of deflation may cause devastating economic, financial and social effects. Originality/value The study contributes to the literature by shedding some new insights about the interrelationship between macroeconomic variables, housing prices and financial stability in the aftermath of the 2008–2009 financial crisis. Such types of studies are absent from emerging markets, particularly from India.

scholarly journals The sources of house price change: identifying liquidity shocks to the housing market

2016 ◽  
Vol 9 (1) ◽  
pp. 98-120 ◽  
Author(s):  
Paloma Taltavull de La Paz ◽  
Michael White
Keyword(s):  
Monetary Policy ◽  
Housing Market ◽  
Error Correction ◽  
House Prices ◽  
Price Change ◽  
Housing Prices ◽  
House Price ◽  
Content Type ◽  
The Uk

Purpose The purpose of this paper is to examine the role of monetary liquidity in house price evolution through examining the Asset (housing) Inflation channel. It identifies the main channels of transmission affecting house prices from monetary supply channels to house price change, examining how the Asset Price channel transmits changes in M1 to housing prices in Spain and the UK. Design/methodology/approach The paper uses Vector Auto Regression (VAR) and Error Correction models to test the Asset Inflation channel in the UK and Spain from 1991 to 2013 in two steps. In the first step, the supply elasticity is estimated through the long-term relationship between house prices and stock supply. The second step estimates a Vector Error Correction (VEC) to explain house price dynamics conditioned on supply reactions. The latter is defined as a long-term inverse demand model where housing prices are controlled by fundamentals in each market. Models allow forecast testing using Choleski impulse responses methodology. Findings Several results are found. In the supply model, both countries show rapid convergence to equilibrium with a larger elasticity of supply in Spain than in the UK but with a short run effect of new supply on prices in the UK. Regarding the Asset Inflation Channel model, the paper finds evidence of the existence of a housing accelerator effect in Spain, but not in the UK where changes in liquidity fully impact house prices in one direction. Research limitations/implications Implications of findings are mainly to forecast the effects of Monetary Policy measures in different economies. Practical implications The model supports the evaluation of different impacts of monetary policy in territories. It shows that the same policy will have different impacts in different housing markets and therefore highlights the importance of examining each market separately to identify the appropriate policy interventions. Originality/value This is the first paper that estimates the impact of the Asset Inflation Channel on house prices that endogenises housing market conditions and compares effects and interrelationships in two different economies.

Are regional house prices stationary in Iran? New evidence using Fourier quantile unit root test

2019 ◽  
Vol 12 (5) ◽  
pp. 849-864
Author(s):  
Arash Hadizadeh
Keyword(s):  
Interest Rates ◽  
Housing Market ◽  
Unit Root ◽  
House Prices ◽  
Housing Prices ◽  
Unit Root Test ◽  
Generalized Least Squares ◽  
Main Concern ◽  
Content Type ◽  
Positive Effects

Purpose In the Iranian economy, investing in the housing market has been very important and beneficial for investors and households, because of inflationary environment, low real interest rates, underdeveloped financial and tax systems and economic sanctions. Hence, prediction of house prices is the main concern of housing market agents in the economy. The purpose of this paper is to test the stationary properties of Iran's provinces to improve the prediction of future housing prices. Design/methodology/approach In this paper, the authors have tested the stationary properties of 20 Iran’s province centers over the period from 1993 to 2017 using a novel Fourier quantile unit root test and conventional ordinary/generalized least squares (O/GLS) linear unit root/stationary tests. Findings According to conventional O/GLS linear unit root/stationary tests, most of the house prices series exhibit random walk behavior, whereas by applying the Fourier quantile unit root test, the null hypothesis of unit root is rejected for 15 out of 20 series. Other results indicated that house prices of cities responded differently to positive and negative shocks. Originality/value Previous studies only addressed conventional OLS or GLS linear unit root or stationary tests, but novel Fourier quantile unit root test was not used. New results were obtained based on this unit root test, that, as a priori knowledge, will help benefiting from the positive effects, or avoiding being victimized by the negative effects.

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

2019 ◽  
Vol 46 (5) ◽  
pp. 1083-1103
Author(s):  
Constantinos Alexiou ◽  
Sofoklis Vogiazas
Keyword(s):  
Housing Market ◽  
House Prices ◽  
Housing Prices ◽  
Positive Association ◽  
Research Area ◽  
Content Type ◽  
Nonlinear Ardl ◽  
Long Run ◽  
Short Run ◽  
The Uk

Purpose Housing 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/approach The authors utilize the recently developed nonlinear ARDL approach of Shin et al. (2014) over the period 1969–2016. Findings The 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/value It 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.

Rising residential rents in Chinese mega cities: The role of monetary policy

Urban Studies ◽  
2016 ◽  
Vol 53 (16) ◽  
pp. 3493-3509 ◽  
Author(s):  
Shu-hen Chiang
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Housing Market ◽  
Global Financial Crisis ◽  
Housing Prices ◽  
Living Standards ◽  
Policy Regimes ◽  
Urban Living ◽  
Mega Cities

Although there have been a large number of studies carried out on fluctuations in housing prices, little is known about what causes changes in residential rents, which are inextricably intertwined with urban living standards. This is especially noteworthy in Chinese cities, which are now being challenged by the housing market frenzies. Shift-share analysis is proposed to evaluate all possible triggers of residential rent inflation in three cities during the 2001–2013 period, which covers two distinct monetary policy regimes in China. It is found that the recent rise in residential rent comes as a result of aggregate inflation associated with an expansionary monetary policy since the 2008 Global Financial Crisis and an all-encompassing and stable policy stance should therefore be adopted.

A macro‐prudential perspective of financial regulation

2011 ◽  
Vol 19 (3) ◽  
pp. 289-297 ◽  
Author(s):  
Tristan Nguyen
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Markets ◽  
Financial Stability ◽  
Housing Prices ◽  
Price Stability ◽  
Trade Off ◽  
Content Type ◽  
Animal Spirit

PurposeIn the recent financial crisis, many observers have assigned monetary policy a central role in the crisis. Specifically, they claim that excessively easy monetary policy by the Federal Reserve in the first half of the decade helped to cause a bubble in housing prices in the USA. The purpose of this paper is to analyze the role of monetary policy within the regulatory frameworks of financial markets.Design/methodology/approachThe authors show within a macroeconomic framework a possible trade‐off between price stability and financial stability by differentiating between a technology‐driven bubble and an animal spirit bubble. In their conclusion: if there is a trade‐off between price stability and financial stability, the central bank will have to make a choice between the two objectives. In that case, the question arises of which of the two objectives should take precedence: price stability or financial stability?FindingsFrom this analysis, the authors conclude that a central bank which uses a lexicographic ordering favoring price stability over other objectives is likely to fuel the boom inadvertently (in the case of a technology‐driven bubble) or will decide to do nothing (in the case of an animal spirit bubble) allowing a process of excessive credit creation. The latter seems to be what happened between 2003 and 2008.Practical implicationsIf one wants to reduce the likelihood of future major financial busts, it must be accepted that the central banks (especially the Fed and the ECB) cannot only be responsible for price stability. Maintaining financial stability by preventing excesses in financial markets should be an equally important objective.Originality/valueThe paper gives a new perspective on the role of monetary policy within the regulatory framework. With this macroeconomic framework, the authors are able to show possible trade‐offs between price stability and financial stability. The micro‐ and macro‐prudential approach of this paper is a useful contribution to the discussion about regulatory reforms of financial markets.

The housing market channel of monetary policy transmission in the Euro area

2016 ◽  
Vol 9 (1) ◽  
pp. 76-97
Author(s):  
Stanimira Milcheva ◽  
Steffen Sebastian
Keyword(s):  
Monetary Policy ◽  
Housing Market ◽  
Euro Area ◽  
House Prices ◽  
Monetary Policy Transmission ◽  
Mortgage Markets ◽  
Content Type ◽  
Residential Investment ◽  
Policy Transmission ◽  
Market Channel

Purpose The purpose of this paper is to explore the role of the housing market in the monetary policy transmission to consumption among euro area member states. It has been argued that the housing market in one country is then important when its mortgage market is well developed. The countries in the euro area follow unitary monetary policy; however, their housing and mortgage markets show some heterogeneity, which may lead to different policy effects on aggregate consumption through the housing market. Design/methodology/approach The housing market can act as a channel of monetary policy shocks to household consumption through changes in house prices and residential investment – the housing market channel. The authors estimate vector autoregressive models for each country and conduct a counterfactual analysis to disentangle the housing market channel and assess its importance across the euro area member states. Findings The authors find little evidence for heterogeneity of the monetary policy transmission through house prices across the euro area countries. Housing market variations in the euro area seem to be better captured by changes in residential investment rather than by changes in house prices. As a result, the authors do not find significantly large house price channels. For some of the countries however, they observe a monetary policy channel through residential investment. The existence of a housing channel may depend on institutional features of both the labour market or with institutional factors capturing the degree of household debt as is the loan-to-value ratio. Originality/value The study contributes to the existing literature by assessing whether a unitary monetary policy has a different impact on consumption across the euro area countries through their housing and mortgage markets. The authors disentangle monetary-policy-induced effects on consumption associated with variations on the housing markets due to either house price variations or residential investment changes. The authors show that the housing market can play a role in the monetary transmission mechanism even in countries with less developed mortgage markets through variations in residential investment.

scholarly journals Cyclical and structural change in the UK housing market

2015 ◽  
Vol 8 (1) ◽  
pp. 85-103 ◽  
Author(s):  
Michael White
Keyword(s):  
Financial Crisis ◽  
Interest Rates ◽  
Housing Market ◽  
Money Supply ◽  
House Prices ◽  
Mortgage Lending ◽  
Market Liquidity ◽  
Content Type ◽  
Factors Affecting ◽  
Short Run

Purpose – This paper aims to examine factors affecting house prices separating cyclical and structural influences. In addition to considering the role of income and interest rates, it examines whether access to a key source of liquidity, mortgage finance, could affect the long-term behaviour of the market rather than being a short run impact. In addition, the paper considers whether the effects of mortgage funding and the financial crisis affect all regions equally or whether there exist particular differences across regions of the UK. Design/methodology/approach – Using quarterly time series data from 1983q1 to 2011q2, the paper employs a Johansen cointegration approach to identify the long-run (permanent) and short-run (transitory) factors affecting house prices both at national and regional levels. It identifies whether there is a separate influence for mortgage lending from interest rates and general money market liquidity, as captured by money supply M3, and whether these effects are permanent or temporary. The paper employs impulse response functions to examine house price evolution due to innovations in mortgage lending and quantifies these effects with and without the financial crisis. Findings – The findings indicate that real personal disposable income, mortgage market liquidity, interest rates and money supply as well as housing stock supply impact house prices permanently with the expected signs. The findings are broadly consistent at national and regional level, although there are some significant regional variations in results. The mean reversion of the housing markets is captured via the error correction term which is significant at the national level and in all but three regions. Impulse response functions show how house prices respond to shocks in mortgage lending and how this varies with and without a financial crisis. Research limitations/implications – The importance of mortgage lending to the housing market is a clear result from the research in addition to income, interest rate and money supply effects. One implication is that factors affecting mortgage lending supply can impact the housing market in both the short and long run. Practical implications – Given the significance of mortgage finance for house price evolution, the paper discusses how the Help-to-Buy policy may help to overcome the limitations created by the reaction of the mortgage lending sector to the financial crisis. Social implications – Access to homeownership has been limited by greater downpayment constraints introduced by lenders since 2008/2009. Policies that reduce these constraints may enable households to change to the type of tenure they prefer. Originality/value – The paper identifies the importance of mortgage lending for the housing market both nationally and regionally using an econometric approach that quantifies the role of fundamentals in both the long and short run.

scholarly journals Housing prices in peninsular Malaysia: supported by income, foreign inflow or speculation?

2019 ◽  
Vol 12 (3) ◽  
pp. 424-441 ◽  
Author(s):  
Wang Li Wong ◽  
Chin Lee ◽  
Seow Shin Koong
Keyword(s):  
Housing Market ◽  
Low Income ◽  
House Prices ◽  
Correction Term ◽  
Housing Prices ◽  
House Price ◽  
Peninsular Malaysia ◽  
Financial Asset ◽  
Content Type ◽  
The Impact

Purpose This paper is motivated by a concern about the ability of the average Malaysian income to catch up with the rapidly increasing house prices in Peninsular Malaysia. Financial innovation in financial system now regards houses as a financial asset and speculation vehicle. Therefore, a house purchase is made to acquire not merely a necessity but also a financial asset which can generate future returns. Given the problems in the housing market, this paper aims to examine the determinants of house prices in Malaysia, including those such as income, population, foreign inflow and speculation. Design/methodology/approach This study adopts panel data analyses, namely, the fixed effect model (FEM) and the pooled mean group (PMG), and uses data at state level in quarterly frequency, spanning from 2005Q1 to 2013Q4. Findings Based on the results of FEM, these determinants influence house prices significantly. Moreover, the PMG results suggest that there is convergence in the model, which are indicated by the significant and negative sign of the error correction term. In conclusion, the rapidly increasing house price is not caused by speculation activities in the housing market. More precisely, Malaysian income is capable of catching up with the increasing house prices. Practical implications As income remains to be one of the major drivers in influencing Malaysian house price, Malaysian Government shall continue the policies of supply low cost houses to the low-income groups and My First Home Scheme (SRP) by offering less stringent rules in applying house loan for the first-time house buyers. Originality/value This study used the actual data of foreign housing purchase obtained from Malaysia Valuation and Property Services Department to represent foreign inflow; therefore, the results will reflect the impact of foreign inflow in a better manner.

scholarly journals The role and significance of planning in the determination of house prices in Australia: Recent policy debates

2021 ◽  
pp. 0308518X2198894
Author(s):  
Peter Phibbs ◽  
Nicole Gurran
Keyword(s):  
Land Use ◽  
Housing Market ◽  
Land Use Planning ◽  
House Prices ◽  
Housing Prices ◽  
House Price ◽  
Evidence Base ◽  
Urban Housing ◽  
Price Inflation ◽  
Depth Analysis

On the world stage, Australian cities have been punching above their weight in global indexes of housing prices, sparking heated debates about the causes of and remedies for, sustained house price inflation. This paper examines the evidence base underpinning such debates, and the policy claims made by key commentators and stakeholders. With reference to the wider context of Australia’s housing market over a 20 year period, as well as an in depth analysis of a research paper by Australia’s central Reserve Bank, we show how economic theories commonly position land use planning as a primary driver of new supply constraints but overlook other explanations for housing market behavior. In doing so, we offer an alternative understanding of urban housing markets and land use planning interventions as a basis for more effective policy intervention in Australian and other world cities.

scholarly journals Assessing the sustainable nature of housing-related taxation receipts: the case of Ireland

2016 ◽  
Vol 9 (2) ◽  
pp. 193-214 ◽  
Author(s):  
Diarmaid Addison Smyth ◽  
Kieran McQuinn
Keyword(s):  
Financial Crisis ◽  
Housing Market ◽  
Extended Period ◽  
Market Regulation ◽  
Content Type ◽  
Public Finances ◽  
Financial Market Regulation ◽  
The Public ◽  
Recent Financial Crisis ◽  
Run Up

Purpose The Irish fiscal position was significantly affected by the recent financial crisis. Budgetary surpluses quickly gave way to significant deficits post 2007, culminating into a lengthy excessive deficit procedure and entry into a formal EU/IMF assistance programme in 2010. Much of the deterioration in the public finances was caused by a sharp decline in property-related taxes because the Irish housing market rapidly contracted. In this paper, the authors quantify the extent to which disequilibria in the housing market can affect the tax take, finding significant implications over an extended period. Design/methodology/approach The authors attempt to quantify the extent of housing-related tax windfall gains and losses in Ireland over a 30-year period as a result of disequilibrium in the housing market. This involves a three-step modelling approach where we relate property-dependent taxes to the housing market while estimating equilibrium in the latter before solving for the tax take consistent with that equilibrium. In so doing, the authors find that the fiscal position compatible with equilibrium in the housing market has at times diverged greatly from actual outturns. Findings This paper confirms the significant role played by the housing market in influencing both the tax-take and the overall fiscal position. The authors find that there have been a number of instances where excesses in the housing market have spilled over into fiscal aggregates, notably in the housing bubble period between 2003 and 2008. However, with the on-going adjustments in the housing market, it would appear that prices and volumes have overcorrected in recent years. Overall, much greater emphasis should be given to the role of the housing market in forecasting key taxation aggregates. Originality/value The recent crisis highlighted how domestic policy mistakes (both in terms of budgetary planning and financial market regulation) can greatly amplify economic shocks. Irish budgetary policy in the run up to the financial crisis of 2008/2009 was clearly based on unsustainable levels of housing-related tax receipts. This paper highlights the need for a much more granular approach in framing tax forecasts and in assessing the public finances by more explicitly factoring in housing market developments.

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