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UK Political Cycle and the Effect on National House Prices: An Exploratory Study

Author

Listed:
  • Bismark Aha
  • David.M Higgins
  • Timothy Lee

Abstract

Over the last two decades, many developed countries have experienced notable changes in house prices. This exploratory study considers if house price movements in the UK can be linked to the political cycle as governments realise homeowners represent a large portion of the voter base and their voting decisions could be influenced by the magnitude and direction of house price changes. Specifically, the study investigates whether house prices behave differently before and after elections and under different political regimes. To examine this relationship, the study analyzed quarterly UK national house price data since 1960, along with data on the results of UK parliamentary elections during the same period. Over this period, real UK house prices increased by an average of 2.83% per annum. While there is no evidence that house prices in the UK behave significantly differently under different political parties, it is evident that house prices perform much better in the last year before an election, compared to the first year after an election. House prices increased by 5.2% per annum, on the average, in the last year before an election compared to 1.0% per annum in the first year following an election. As this research clearly identifies major variations in house price performance around election times, residential property investment decisions should take into consideration the political cycle.

Suggested Citation

  • Bismark Aha & David.M Higgins & Timothy Lee, 2018. "UK Political Cycle and the Effect on National House Prices: An Exploratory Study," ERES eres2018_60, European Real Estate Society (ERES).
  • Handle: RePEc:arz:wpaper:eres2018_60
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    References listed on IDEAS

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    1. repec:cup:cbooks:9780521462068 is not listed on IDEAS
    2. Kim, k. & Suh, s. & Feridun, M., 2006. "Real State Business Cycle and Real Estate Policies: The Case of Korea," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 6(1).
    3. Muellbauer, John & Murphy, Anthony, 1997. "Booms and Busts in the UK Housing Market," Economic Journal, Royal Economic Society, vol. 107(445), pages 1701-1727, November.
    4. Kostas Tsatsaronis & Haibin Zhu, 2004. "What drives housing price dynamics: cross-country evidence," BIS Quarterly Review, Bank for International Settlements, March.
    5. Paloma Taltavull de La Paz & Michael White, 2012. "Fundamental drivers of house price change: the role of money, mortgages, and migration in Spain and the United Kingdom," Journal of Property Research, Taylor & Francis Journals, vol. 29(4), pages 341-367, September.
    6. Pedro Santa-Clara & Rossen Valkanov, 2003. "The Presidential Puzzle: Political Cycles and the Stock Market," Journal of Finance, American Finance Association, vol. 58(5), pages 1841-1872, October.
    7. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
    8. Jac C. Heckelman & John H. Wood, 2005. "Political Monetary Cycles Under Alternative Institutions: The Independent Treasury And The Federal Reserve," Economics and Politics, Wiley Blackwell, vol. 17(3), pages 331-350, November.
    9. repec:cup:cbooks:9780521467681 is not listed on IDEAS
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    More about this item

    Keywords

    Housing Market; Political Studies; Property Cycles; Residential house prices; United Kingdom;

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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