Cycles in the UK Housing Economy : Price and its Relationship with Lenders, Buyers, Consumption and Construction

This book uses empirical research to examine fluctuations and periodicities in housing markets in the United Kingdom. Chapters investigate received wisdom on housing market co-determination before exploring an unconventional approach to analysing the interaction and diffusion evidence base. Finally, the author presents varied case studies, analysing price diffusion across first-time and repeat buyer groups, regions and housing vintages, as well as related macro variables. This volume will be of interest to academics and researchers interested in the area of price diffusion across housing markets. David Gray, PhD, is Principal Lecturer at Lincoln International Business School at the University of Lincoln, UK. Dr Gray also serves as an Academic Lead of Economics at the School. His research areas of interest include housing, exchange rates and regional unemployment. Read more... Abstract: This book uses empirical research to examine fluctuations and periodicities in housing markets in the United Kingdom. Chapters investigate received wisdom on housing market co-determination before exploring an unconventional approach to analysing the interaction and diffusion evidence base. Finally, the author presents varied case studies, analysing price diffusion across first-time and repeat buyer groups, regions and housing vintages, as well as related macro variables. This volume will be of interest to academics and researchers interested in the area of price diffusion across housing markets. David Gray, PhD, is Principal Lecturer at Lincoln International Business School at the University of Lincoln, UK. Dr Gray also serves as an Academic Lead of Economics at the School. His research areas of interest include housing, exchange rates and regional unemployment Contents 5 List of Figures 9 List of Tables 11 1 Introduction 13 Abstract 13 1.1 Housing Economics: The Macro, Micro, and Meso Levels of Analysis 14 1.2 The Scope of the Work 19 1.2.1 What Propositions Are Explored? 21 1.3 Data and Methods of Data Analysis 23 1.4 The Structure of the Work 23 References 26 2 A Consideration of Related Contributions in the Fields of Housing and Consumption 28 Abstract 28 2.1 Introduction 28 2.2 House Price Diffusion Between Buyers, Vintages, and Regions 29 2.2.1 UK House Price Ripple Effect 29 2.2.2 Contributions Using Other Methods 32 2.2.3 Revealing House Price Diffusion in Other Countries 33 2.2.4 Price Interaction Between Housing Markets of Different Quality 35 2.3 How Long Are Economic Cycles? 39 2.3.1 Evidence of Cycles in Property 42 2.3.2 International Cycles 44 2.4 Consumption over a Life Time 45 2.4.1 The Consumption and Housing Nexus 46 2.4.2 Credit Constraints: Constrained Consumption 47 References 48 3 Housing Market Theory 57 Abstract 57 3.1 Introduction 57 3.2 Monocentric Urban Model 58 3.3 Interaction of Urban Centres 63 3.4 From Rent to House Prices 67 3.5 Buyers that are Sellers—A Key Source of Volatility 68 3.6 Shock and Cycle—Two Views 70 3.6.1 New and Traditional Periodicities 72 3.6.2 Cycles in House Prices 75 3.6.3 Life Cycle Effects on Consumption and Housing Choices 76 3.6.4 The Interweaving of Cycles 76 3.6.5 Cycles and Expectations 77 3.7 Explanations of Inter-urban Price Co-movement 79 3.7.1 Balanced Economy Models 79 3.7.2 Urban Systems, Nodality and Imbalanced Economy Models 82 3.8 What is a Geographical Housing Market? 84 3.8.1 A Unifying Framework to Consider Spatial Market Interaction 88 3.8.2 The Ripple—A Series of Shocks or Persistent Cycle 93 3.9 Consumption 94 3.9.1 Forward-looking Consumption Models 94 3.9.2 Consumption Constraints and Financial Liberalisation 96 3.9.3 Property, Consumption and the Wealth Effect 98 3.9.4 The Age of the Buyer—Income and Substitution Effects 99 3.9.5 Consumption of Durable Goods Over the Cycle 99 References 100 4 Spectral Analysis and Other Pairwise Techniques 106 Abstract 106 4.1 Introduction 106 4.2 Filters and Cycles 107 4.3 Cross-Spectral Analysis 108 4.3.1 Covariance Stationary Time Series 109 4.4 Finance, Income, and Consumption 114 4.5 Granger Causality 115 4.6 Unit Roots 116 4.7 Application of Unit Root Tests and Granger Causality 117 4.8 Cycle Perspective in the Time Domain 118 References 119 5 House Price, Consumption, and Construction Data 123 Abstract 123 5.1 Introduction 123 5.2 The Choice of Nominal Over Real Values 125 5.3 The Time Paths of Cycles and Trends 127 5.4 Buyer-Group Prices 129 References 135 6 Evidence of Cycles in the Housing Economy 137 Abstract 137 6.1 Introduction 137 6.2 Capturing Longer Cycles in Long Series 138 6.3 Consumption, Income and Housing—What Has Changed? 142 6.3.1 HHE and GDP 142 6.3.2 HHE and House Prices 143 6.4 Construction Expenditure 146 6.4.1 The Long View 146 6.4.2 Evidence of a Change? 148 6.5 How Is Lending Affected by the Housing Economy? 151 6.5.1 Lending and GDP 151 6.5.2 Lending and House Prices 152 6.6 Consumer Durables—Deferrable Consumption 155 6.6.1 Consumer Durables and GDP 155 6.6.2 Consumer Durables and House Prices 155 6.7 House Vintages—Are New Dwelling Different? 158 6.8 Buyer Groups and the Recycling of Dwellings 162 6.8.1 Do Alternative Cycle Decompositions Affect Results? 164 6.9 The Ripple Effect and Buyer Groups 164 6.9.1 Is Price Diffusions Better Explained by Urban Systems Theory? 167 6.10 Time Domain Confirmation—Unit Root Tests 169 6.11 What Is Inferred from the Results? 174 6.11.1 A Persistent Cyclical Perspective of the Ripple Effect 174 6.11.2 Price Leadership and Overlapping Markets 174 References 175 7 Contributions to the Field and Policy Implications 179 Abstract 179 7.1 Spectral Methods 181 7.2 Length of Series and Cycles 181 7.3 Changing Cycles 182 7.4 House Prices and Consumption at the National Level 183 7.5 Buyer Groups and the Ripple Effect 185 7.6 Robust Cycles 186 7.7 Policy and Future Research: Recycling and Society 188 References 191 Index 194 Front Matter ....Pages i-xii Introduction (David Gray)....Pages 1-15 A Consideration of Related Contributions in the Fields of Housing and Consumption (David Gray)....Pages 17-45 Housing Market Theory (David Gray)....Pages 47-95 Spectral Analysis and Other Pairwise Techniques (David Gray)....Pages 97-113 House Price, Consumption, and Construction Data (David Gray)....Pages 115-128 Evidence of Cycles in the Housing Economy (David Gray)....Pages 129-170 Contributions to the Field and Policy Implications (David Gray)....Pages 171-185 Back Matter ....Pages 187-192