IDEAS home Printed from https://ideas.repec.org/a/sae/urbstu/v55y2018i12p2660-2681.html
   My bibliography  Save this article

Climbing the property ladder: An analysis of market integration in London property prices

Author

Listed:
  • Mark J Holmes

    (Department of Economics, Waikato University, New Zealand)

  • Jesús Otero

    (Facultad de Economía, Universidad del Rosario, Colombia)

  • Theodore Panagiotidis

    (Department of Economics, University of Macedonia, Greece)

Abstract

We investigate the long-run convergence of house prices across the London boroughs based on a pairwise unit root probabilistic testing procedure. In sharp contrast to the earlier literature, we employ a dataset that distinguishes between four different types of property in each borough. Using a quarterly dataset that spans from 1995 to 2014, we find evidence in favour of long-run convergence thereby suggesting that the great majority of London borough house prices are driven by a single common stochastic trend. In a further contribution, we offer new insights through analysing the determinants of long-run convergence, by considering the role of geographic proximity, type of accommodation and amenities (quality of life).

Suggested Citation

  • Mark J Holmes & Jesús Otero & Theodore Panagiotidis, 2018. "Climbing the property ladder: An analysis of market integration in London property prices," Urban Studies, Urban Studies Journal Limited, vol. 55(12), pages 2660-2681, September.
  • Handle: RePEc:sae:urbstu:v:55:y:2018:i:12:p:2660-2681
    DOI: 10.1177/0042098017692303
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0042098017692303
    Download Restriction: no

    File URL: https://libkey.io/10.1177/0042098017692303?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Badi H. Baltagi, 2015. "Seemingly Unrelated Regressions," Springer Texts in Business and Economics, in: Solutions Manual for Econometrics, edition 3, chapter 0, pages 233-257, Springer.
    2. Andrew Abbott & Glauco De Vita, 2012. "Pairwise Convergence of District-level House Prices in London," Urban Studies, Urban Studies Journal Limited, vol. 49(4), pages 721-740, March.
    3. Hashem Pesaran, M., 2007. "A pair-wise approach to testing for output and growth convergence," Journal of Econometrics, Elsevier, vol. 138(1), pages 312-355, May.
    4. Jesús Otero & Jeremy Smith, 2012. "Response surface models for the Leybourne unit root tests and lag order dependence," Computational Statistics, Springer, vol. 27(3), pages 473-486, September.
    5. Cheung, Yin-Wong & Lai, Kon S, 1995. "Lag Order and Critical Values of a Modified Dickey-Fuller Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(3), pages 411-419, August.
    6. Mark J. Holmes & Arthur Grimes, 2008. "Is There Long-run Convergence among Regional House Prices in the UK?," Urban Studies, Urban Studies Journal Limited, vol. 45(8), pages 1531-1544, July.
    7. Plamen T. Nenov & Erling Røed Larsen & Dag Einar Sommervoll, 2016. "Thick‐market Effects, Housing Heterogeneity, and the Determinants of Transaction Seasonality," Economic Journal, Royal Economic Society, vol. 126(598), pages 2402-2423, December.
    8. Leybourne, S J, 1995. "Testing for Unit Roots Using Forward and Reverse Dickey-Fuller Regressions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(4), pages 559-571, November.
    9. Le Pen, Yannick, 2011. "A pair-wise approach to output convergence between European regions," Economic Modelling, Elsevier, vol. 28(3), pages 955-964, May.
    10. Cheung, Yin-Wong & Lai, Kon S, 1995. "Lag Order and Critical Values of the Augmented Dickey-Fuller Test," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 277-280, July.
    11. Carlino, Gerald A. & Mills, Leonard, 1996. "Testing neoclassical convergence in regional incomes and earnings," Regional Science and Urban Economics, Elsevier, vol. 26(6), pages 565-590, December.
    12. Holmes, Mark J. & Otero, Jesús & Panagiotidis, Theodore, 2011. "Investigating regional house price convergence in the United States: Evidence from a pair-wise approach," Economic Modelling, Elsevier, vol. 28(6), pages 2369-2376.
    13. Leung, Charles, 2004. "Macroeconomics and housing: a review of the literature," Journal of Housing Economics, Elsevier, vol. 13(4), pages 249-267, December.
    14. Holly, Sean & Hashem Pesaran, M. & Yamagata, Takashi, 2011. "The spatial and temporal diffusion of house prices in the UK," Journal of Urban Economics, Elsevier, vol. 69(1), pages 2-23, January.
    15. Paul Cheshire & Stephen Sheppard, 2004. "Capitalising the Value of Free Schools: The Impact of Supply Characteristics and Uncertainty," Economic Journal, Royal Economic Society, vol. 114(499), pages 397-424, November.
    16. Fack, Gabrielle & Grenet, Julien, 2010. "When do better schools raise housing prices? Evidence from Paris public and private schools," Journal of Public Economics, Elsevier, vol. 94(1-2), pages 59-77, February.
    17. Baltagi, Badi H. & Bresson, Georges, 2011. "Maximum likelihood estimation and Lagrange multiplier tests for panel seemingly unrelated regressions with spatial lag and spatial errors: An application to hedonic housing prices in Paris," Journal of Urban Economics, Elsevier, vol. 69(1), pages 24-42, January.
    18. Steve Gibbons, 2004. "The Costs of Urban Property Crime," Economic Journal, Royal Economic Society, vol. 114(499), pages 441-463, November.
    19. Mark J. Holmes & Jesús Otero & Theodore Panagiotidis, 2017. "A Pair-wise Analysis of Intra-city Price Convergence Within the Paris Housing Market," The Journal of Real Estate Finance and Economics, Springer, vol. 54(1), pages 1-16, January.
    20. Stephan Huber & Christoph Rust, 2016. "Calculate travel time and distance with OpenStreetMap data using the Open Source Routing Machine (OSRM)," Stata Journal, StataCorp LP, vol. 16(2), pages 416-423, June.
    21. Otero, Jesus & Smith, Jeremy, 2000. "Testing for cointegration: power versus frequency of observation -- further Monte Carlo results," Economics Letters, Elsevier, vol. 67(1), pages 5-9, April.
    22. Edward L. Glaeser & Joshua D. Gottlieb, 2009. "The Wealth of Cities: Agglomeration Economies and Spatial Equilibrium in the United States," Journal of Economic Literature, American Economic Association, vol. 47(4), pages 983-1028, December.
    23. Geoffrey Meen, 2016. "Spatial housing economics: A survey," Urban Studies, Urban Studies Journal Limited, vol. 53(10), pages 1987-2003, August.
    24. Myriam Nourry, 2009. "Re-Examining the Empirical Evidence for Stochastic Convergence of Two Air Pollutants with a Pair-Wise Approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(4), pages 555-570, December.
    25. Plamen T. Nenov & Erling Røed Larsen & Dag Einar Sommervoll, 2016. "Thick‐Market Effects, Housing Heterogeneity, and the Determinants of Transaction Seasonality," Economic Journal, Royal Economic Society, vol. 126(598), pages 2402-2423.
    26. repec:dau:papers:123456789/6806 is not listed on IDEAS
    27. Michael J. Ball, 1973. "Recent Empirical Work on the Determinants of Relative House Prices," Urban Studies, Urban Studies Journal Limited, vol. 10(2), pages 213-233, June.
    28. Stephen Gibbons & Stephen Machin, 2006. "Paying for Primary Schools: Admission Constraints, School Popularity or Congestion?," Economic Journal, Royal Economic Society, vol. 116(510), pages 77-92, March.
    29. Helena Meier & Katrin Rehdanz, 2017. "The amenity value of the British climate," Urban Studies, Urban Studies Journal Limited, vol. 54(5), pages 1235-1262, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kyriazakou, Eleni & Panagiotidis, Theodore, 2017. "Causality analysis of the Canadian city house price indices: A cross-sample validation approach," The Journal of Economic Asymmetries, Elsevier, vol. 16(C), pages 42-52.
    2. Miles, William, 2020. "House price convergence in the euro zone: A pairwise approach," Economic Systems, Elsevier, vol. 44(3).
    3. Gabrieli, Tommaso & Panagiotidis, Theodore & Xu, Yishuang, 2019. "Pair-wise convergence of intra-city house prices in Beijing," The Journal of Economic Asymmetries, Elsevier, vol. 20(C).
    4. Holmes, Mark J. & Otero, Jesús & Panagiotidis, Theodore, 2019. "Property heterogeneity and convergence club formation among local house prices," Journal of Housing Economics, Elsevier, vol. 43(C), pages 1-13.
    5. Eleni Kyriazakou & Theodore Panagiotidis, 2018. "A nonlinear pairwise approach for the convergence of UK regional house prices," International Economics and Economic Policy, Springer, vol. 15(2), pages 467-481, April.
    6. Yuanyuan Cai & Yingming Zhu & Marco Helbich, 2022. "Club convergence of regional housing prices in China: evidence from 70 major Cities," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 69(1), pages 33-55, August.
    7. Robert Webb & Duncan Watson & Steven Cook, 2021. "Price adjustment in the London housing market," Urban Studies, Urban Studies Journal Limited, vol. 58(1), pages 113-130, January.
    8. Jin Hu & Xuelei Xiong & Yuanyuan Cai & Feng Yuan, 2020. "The Ripple Effect and Spatiotemporal Dynamics of Intra-Urban Housing Prices at the Submarket Level in Shanghai, China," Sustainability, MDPI, vol. 12(12), pages 1-17, June.
    9. Moritz Degler & Karsten Staehr, 2021. "Price and income convergence and the dynamic Penn effect in Central and Eastern Europe," Economic Change and Restructuring, Springer, vol. 54(3), pages 621-635, August.
    10. Umut Unal & Bernd Hayo & Isil Erol, 2022. "Housing Market Convergence: Evidence from Germany," MAGKS Papers on Economics 202244, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mark J. Holmes & Jesús Otero & Theodore Panagiotidis, 2017. "A Pair-wise Analysis of Intra-city Price Convergence Within the Paris Housing Market," The Journal of Real Estate Finance and Economics, Springer, vol. 54(1), pages 1-16, January.
    2. Richard T. Baillie & Kun Ho Kim, 2015. "Local Deviations from Uncovered Interest Parity: The Role of Macroeconomic Fundamentals," Working Paper series 15-43, Rimini Centre for Economic Analysis.
    3. Eleni Kyriazakou & Theodore Panagiotidis, 2018. "A nonlinear pairwise approach for the convergence of UK regional house prices," International Economics and Economic Policy, Springer, vol. 15(2), pages 467-481, April.
    4. Holmes, Mark J. & Otero, Jesús & Panagiotidis, Theodore, 2019. "Property heterogeneity and convergence club formation among local house prices," Journal of Housing Economics, Elsevier, vol. 43(C), pages 1-13.
    5. Holmes, Mark J. & Otero, Jesús & Panagiotidis, Theodore, 2015. "The expectations hypothesis and decoupling of short- and long-term US interest rates: A pairwise approach," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 301-313.
    6. Gabrieli, Tommaso & Panagiotidis, Theodore & Xu, Yishuang, 2019. "Pair-wise convergence of intra-city house prices in Beijing," The Journal of Economic Asymmetries, Elsevier, vol. 20(C).
    7. Cárdenas, Jeisson & Gutiérrez, Luis H. & Otero, Jesús, 2017. "Investigating diesel market integration in France: Evidence from micro data," Energy Economics, Elsevier, vol. 63(C), pages 314-321.
    8. Holmes, Mark J. & Otero, Jesús & Panagiotidis, Theodore, 2013. "On the dynamics of gasoline market integration in the United States: Evidence from a pair-wise approach," Energy Economics, Elsevier, vol. 36(C), pages 503-510.
    9. Nazlioglu, Saban & Lee, Junsoo, 2020. "Response surface estimates of the LM unit root tests," Economics Letters, Elsevier, vol. 192(C).
    10. Núñez, Héctor M. & Trujillo-Barrera, Andres & Etienne, Xiaoli, 2022. "Declining integration in the US natural gas market," Resources Policy, Elsevier, vol. 78(C).
    11. Hector M. Nuñez and Jesús Otero, 2017. "Integration in Gasoline and Ethanol Markets in Brazil over Time and Space under the Flex-fuel Technology," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    12. Jin Hu & Xuelei Xiong & Yuanyuan Cai & Feng Yuan, 2020. "The Ripple Effect and Spatiotemporal Dynamics of Intra-Urban Housing Prices at the Submarket Level in Shanghai, China," Sustainability, MDPI, vol. 12(12), pages 1-17, June.
    13. Domingo Rodríguez Benavides & Abigail Rodríguez Nava, 2019. "Convergencia de los precios locales en México: un enfoque de pruebas entre pares/Convergence of local prices in Mexico: A pairwise approach," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 34(2), pages 309-332.
    14. Miles, William, 2020. "House price convergence in the euro zone: A pairwise approach," Economic Systems, Elsevier, vol. 44(3).
    15. Yuanyuan Cai & Yingming Zhu & Marco Helbich, 2022. "Club convergence of regional housing prices in China: evidence from 70 major Cities," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 69(1), pages 33-55, August.
    16. Michele Battisti & Giovanni Bernardo & Andrea Mario Lavezzi & Giuseppe Maggio, 2019. "Shooting down the price: evidence from mafia homicides and housing market volatility," Working Paper series 19-05, Rimini Centre for Economic Analysis.
    17. Thomas Y. Mathä & Alessandro Porpiglia & Michael Ziegelmeyer, 2014. "Wealth differences across borders and the effect of real estate price dynamics: Evidence from two household surveys," BCL working papers 90, Central Bank of Luxembourg.
    18. Christian A. L. Hilber, 2017. "The Economic Implications of House Price Capitalization: A Synthesis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 45(2), pages 301-339, April.
    19. Badi H. Baltagi & Georges Bresson & Jean‐Michel Etienne, 2015. "Hedonic Housing Prices in Paris: An Unbalanced Spatial Lag Pseudo‐Panel Model with Nested Random Effects," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(3), pages 509-528, April.
    20. Biel E. Metz, 2015. "Effect of Distance to Schooling on Home Prices," The Review of Regional Studies, Southern Regional Science Association, vol. 45(2), pages 151-171, Fall.

    More about this item

    Keywords

    Cointegration; convergence; house prices; pairwise;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:urbstu:v:55:y:2018:i:12:p:2660-2681. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.gla.ac.uk/departments/urbanstudiesjournal .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.