Is second home price appreciation explained by production costs? Evidence from the Swedish second home market

A second home is a real estate asset primarily used for leisure, holiday and recreational purposes. It is per definition purchased by a buyer who already owns a primary home. Suggesting that it has one or more heterogeneously distinct characteristics which compensate for the quality of a primary home. Second home ownership is however often only achievable at the cost of a substantial housing investment due to appreciating prices. Despite this many buyers are willing and able to make this housing investment. No more so than in Sweden which has one of the worldís highest second home per household ratios (approximately 50 percent) despite uninterrupted second home price appreciation between 1995 to 2010. Although second homes are a significant component of the aggregate housing portfolio in Sweden, their price determinants are under researched when compared to primary homes. This paper partly redresses this imbalance by examining the extent to which production costs determined second home price appreciation between 1995 to 2010. A two-tailed inversely formulated null hypothesis - ëProduction had no or negative causality on aggregate second home transaction price appreciationí - is tested for this purpose. Both of the null hypothesisís inverse conditions are found to be untrue thereby verifying productionís positive causality on second home price appreciation.