Literature Survey
Course: Real Estate Markets and Analysis
The Determinants of House Price Dynamics: A Survey
The dynamics of housing prices has been a controversial subject and has been studied and investigated by many individuals. There are many reasons for the increased study of house price dynamics. The fact that ownership of houses composes a major part of private sector wealth is one among several reasons. There is a growing number of individuals who spend part of their income on houses. Therefore, the movement of house prices determines in part household expenditure and thus may also influence household consumption. A decline in housing prices would therefore diminish private sector wealth and would thus also influence other factors concerning the economic well-being of private households.
Most authors focus on macroeconomic factors, such as the real interest rate or inflation when trying to explain the determination of housing prices. Nevertheless, most of the writers acknowledge the possibility that there might be other factors influencing the price dynamics of housing. These factors could be of demographic nature (e.g. age of population) or could be related to certain policy changes by governments. The list of possible variables influencing the dynamics of housing prices seems endless. Despite this fact, the survey of the following three papers give some insights into which factors drive housing price dynamics and which factors seem rather irrelevant.
The paper by Englund and Ioannides (1997) studies the dynamics of housing prices in 15 OECD countries. The authors try to find out whether housing prices are predictable, what the determinants of housing prices are and whether there is an international housing price cycle.
The autho ...