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The Growth of House Prices in Australian Capital Cities: What Do Economic Fundamentals Explain?

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  • Glenn Otto

Abstract

"This paper examines the ability of standard economic factors to explain the growth of real house prices in Australia's capital cities. Dynamic models are estimated for each city with the objective of identifying the major drivers of house price growth rates. The variable mortgage rate is found to be an important influence on growth rates in all eight capital cities. However, the size of the mortgage rate effect can differ substantially between cities. For example a 25 basis point rise in the mortgage rate reduces the long-run quarterly growth rate of real house prices by about 1 per cent in Sydney compared with only 0.4 per cent in Adelaide. The effects of other economic variables are less systematic, significantly affecting the growth rate of capital gains in some cities but not in others. Nevertheless, for most Australian cities economic factors are found to explain around 40 to 60 per cent of the variation in the growth rate of house prices." Copyright 2007 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research.

Suggested Citation

  • Glenn Otto, 2007. "The Growth of House Prices in Australian Capital Cities: What Do Economic Fundamentals Explain?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 40(3), pages 225-238, September.
  • Handle: RePEc:bla:ausecr:v:40:y:2007:i:3:p:225-238
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    References listed on IDEAS

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    3. Hall, B.H., 1999. "Innovation and Market Value," Economics Papers 1999-w3, Economics Group, Nuffield College, University of Oxford.
    4. Zvi Griliches, 1984. "Market Value, R&D, and Patents," NBER Chapters,in: R&D, Patents, and Productivity, pages 249-252 National Bureau of Economic Research, Inc.
    5. Geroski, P. A. & Van Reenen, J. & Walters, C. F., 1997. "How persistently do firms innovate?," Research Policy, Elsevier, pages 33-48.
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    Citations

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    Cited by:

    1. David M. Williams, 2009. "House prices and financial liberalisation in Australia," Economics Series Working Papers 432, University of Oxford, Department of Economics.
    2. Philip Inyeob Ji & Glenn Otto, 2015. "Explosive Behaviour in Australian Housing Markets: Rational Bubbles or Not?," Discussion Papers 2015-27, School of Economics, The University of New South Wales.
    3. repec:bla:intfin:v:20:y:2017:i:1:p:64-91 is not listed on IDEAS
    4. repec:uts:finphd:35 is not listed on IDEAS
    5. Leung, Charles Ka Yui & Shi, Song & Ho Tang, Edward Chi, 2013. "Commodity house prices," Regional Science and Urban Economics, Elsevier, vol. 43(6), pages 875-887.
    6. Renée A. Fry & Vance L. Martin & Nicholas Voukelatos, 2010. "Overvaluation in Australian Housing and Equity Markets: Wealth Effects or Monetary Policy?," The Economic Record, The Economic Society of Australia, vol. 86(275), pages 465-485, December.
    7. repec:bla:abacus:v:53:y:2017:i:3:p:304-318 is not listed on IDEAS
    8. Costello, Greg & Fraser, Patricia & Groenewold, Nicolaas, 2011. "House prices, non-fundamental components and interstate spillovers: The Australian experience," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 653-669, March.
    9. Huang, MeiChi & Chiang, Hsiu-Hsuan, 2017. "An early alarm system for housing bubbles," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 34-49.
    10. de Silva, Ashton J & Boymal, Jonathan & Potts, Jason & Thomas, Stuart, 2015. "Does innovation in residential mortgage products explain rising house prices? No," MPRA Paper 62548, University Library of Munich, Germany.
    11. Wadud, I.K.M. Mokhtarul & Bashar, Omar H.M.N. & Ahmed, Huson Joher Ali, 2012. "Monetary policy and the housing market in Australia," Journal of Policy Modeling, Elsevier, vol. 34(6), pages 849-863.

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