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The determinants of house prices in New Zealand: An aggregate and regional analysis

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  • Brendan O'Donovan
  • David Rae

Abstract

This paper models the determinants of house prices in New Zealand at an aggregate and regional level. We model the demand for housing as part of households ' overall consumption decision and combine it with a supply curve and an aggregate consumption function. Dynamics are captured through an asymmetric error-correction mechanism: house price booms are different to house price slumps. House prices in 14 regions are also modelled. We find that relative house prices are affected by a region's economic performance, population, and by agricultural commodity prices. In contrast to UK evidence, we do not find that house prices in regions that are geographically close are more likely to be cointegrated.

Suggested Citation

  • Brendan O'Donovan & David Rae, 1997. "The determinants of house prices in New Zealand: An aggregate and regional analysis," New Zealand Economic Papers, Taylor & Francis Journals, vol. 31(2), pages 175-198.
    • Handle: RePEc:taf:nzecpp:v:31:y:1997:i:2:p:175-198
    DOI: 10.1080/00779959709544273
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    References listed on IDEAS

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    1. Rae, David, 1996. "NBNZ-DEMONZ: A dynamic equilibrium model of New Zealand," Economic Modelling, Elsevier, vol. 13(1), pages 91-165, January.
    2. Ghysels, Eric, 1990. "Unit-Root Tests and the Statistical Pitfalls of Seasonal Adjustment: The Case of U.S. Postwar Real Gross National Product," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 145-152, April.
    3. Sims, Christopher A., 1993. "Rational expectations modeling with seasonally adjusted data," Journal of Econometrics, Elsevier, vol. 55(1-2), pages 9-19.
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    1. David Rae, 1997. "A forward-looking model of aggregate consumption in New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 31(2), pages 199-220.
    2. Grimes, Arthur & Aitken, Andrew, 2004. "What’s the Beef with House Prices? Economic Shocks and Local Housing Markets," Motu Working Papers 292995, Motu Economic and Public Policy Research.
    3. Sarah Drought & Chris McDonald, 2011. "Forecasting house price inflation: a model combination approach," Reserve Bank of New Zealand Discussion Paper Series DP2011/07, Reserve Bank of New Zealand.
    4. Anne de Bruin & Susan Flint-Hartle, 2001. "The Behaviour of Residential Rental Property Investors in New Zeland : A Bounded Rationality Framework," ERES eres2001_144, European Real Estate Society (ERES).
    5. Grimes, Arthur & Kerr, Suzi & Aitken, Andrew, 2003. "Housing And Economic Adjustment," Motu Working Papers 293009, Motu Economic and Public Policy Research.
    6. Karolien De Bruyne & Jan Van Hove, 2013. "Explaining the spatial variation in housing prices: an economic geography approach," Applied Economics, Taylor & Francis Journals, vol. 45(13), pages 1673-1689, May.

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