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

Constantinos Alexiou (Cranfield School of Management, Cranfield, UK)
Sofoklis Vogiazas (Βlack Sea Trade and Development Bank, Thessaloniki, Greece)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 29 August 2019

Abstract

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.

Keywords

Acknowledgements

The authors are grateful to the two anonymous referees and the editor of the journal for their constructive comments. Any remaining errors are of the authors.

Citation

Alexiou, C. and Vogiazas, S. (2019), "Untangling the nonlinear “knots” of UK’s housing prices", Journal of Economic Studies, Vol. 46 No. 5, pp. 1083-1103. https://doi.org/10.1108/JES-06-2018-0222

Publisher

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Emerald Publishing Limited

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