Booms and Busts in the UK Housing Market

Abstract

The often volatile behaviour of UK house prices between  and  is analysed in an annual econometric model. Theory suggests that financial liberalisation of mortgage markets in the s should have led to notable shifts in house price behaviour. The evidence supports the predictions of theory, suggesting shifts took place in wealth effects, as in the consumption function, and that real interest rates and income expectations became more important. The presence of transactions costs suggests important nonlinearities in house price dynamics. The paper also contains an explicit econometric treatment of expectations, demography, supply spillovers from the rented sector and of composition biases in the official house price index.* We are grateful for comments, on earlier versions to the referees and to Janine Aron, Andy Chesher, Nick Coote, Mike Dicks, Steve Martin, Geoff Meen, Penelope Rowlatt, Neil Shephard and seminar participants at Bristol, Dublin, NERA and Oxford. David Hendry is due special thanks for unfailing help over the years this research has been in gestation. Responsibility for errors, however, lies with the authors. We are grateful to Rebecca Emerson, Sebastian Galiani and, especially Gavin Cameron for skilled research support. This research was financed in part by ESRC programme grants R   and R  .[  ]" The small size of this adjustment is explained by the fact that the Department of the Environment house price index is mix-adjusted and so captures major features of quality change.

Housing Markets, Wealth and the Business Cycle

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The Relationship between Mortgage Markets and House Prices: Does Financial Instability Make the Difference?

“…In some studies, therefore, the stock of mortgage loans has been used as a proxy variable for credit rationing (Hendry, 1984). In other studies, such as Muellbauer and Murphy (1997), the growth rate of that stock is used alternatively.…”

Forecasting Housing Supply: Empirical Evidence from the Irish Market

“…Papers such as Muellbauer and Murphy (1997) in the UK and Bacon et al (1998) and Stevenson (2003) in the context of Ireland have used such an approach. The incorporation of fundamental variables also allows a comparison with pure time-series approach of the ARIMA.…”