Dependence of Housing Real Estate Prices on Inflation as One of the Most Important Factors: Poland’s Case

Abstract

The study aimed to examine the impact of inflation on the real estate market using Polish panel data for the last 13 years. It is based on a panel model, where price changes of one square meter of housing are determined as a function in changes of inflation, the central bank’s base rate, dwellings built, as well as new mortgage loans. The quarterly dynamics of the average price of 1 square meter of housing in Poland’s eight largest cities in the 2009-2021 period was studied. This price was modeled and predicted using one of the Box-Jenkins time series models: the Holt-Winter model of exponential smoothing with a damped trend. The forecasting results showed a small (up to 4%) relative error in comparison with the actual data. In addition, the moment (2017) of the price trend change was found. Therefore, piecewise linear regressions with high regression coefficients were used when modeling the impact of inflation changes on the real estate market indicators under consideration. The results obtained provide valuable insight into the relationship of real estate market indicators, allowing consumers to predict available options and make decisions in accordance with their preferences.

The Potential of Residential Property in Poland as an Inflation Hedge Investment

“…Comparing the obtained results with other studies of the Polish market, we can recognize their correspondence with the results of Trojanek (2004) and Melnychenko et al (2022), indicating the inflationhedging ability of the Polish residential market. The discrepancy with the results of Wolski (2023), who concluded that the Polish residential market does not effectively hedge against inflation, is due to using different data and applying a different research method.…”

“…Using three aggregated hedonic price indices of residential real estate (for 6, 7 and 10 of the biggest Polish cities), he stated that residential property prices and inflation rates (actual and expected) were not cointegrated, so Polish housing markets do not effectively hedge against inflation. For the same period, he also showed (2022), similarly to Melnychenko et al (2022), that the housing price index was positively correlated with inflation and concluded by raising the question of an appropriate method of assessing the hedging properties of assets.…”

“…Analyzing three groups of flats of different sizes separately, he found that investments in residential real estate in Poznan market provided an effective hedge against expected and unexpected inflation. Melnychenko et al (2022), using regression analysis, showed that, in the years 2009 -2021, in seven of the eight largest local housing markets in Poland, the real estate prices were positively related with the inflation rate. Wolski (2023) conducted a cointegration analysis for 2009-2021.…”

Financial Efficiency and Investor Behavior on the European Real Estate Market in the Rising Inflation Environment

“…In the Polish real estate market context, Melnychenko et al (2022) conducted a study on the impact of inflation on property prices in eight major cities from 2009 to 2021. The study covered Warsaw, Katowice, Lodz, Wroclaw, Gdansk, Bialystok, Krakow, and Poznan.…”

“…Surprisingly, Poznan showed little sensitivity to changes in inflation. Importantly, Melnychenko and colleagues accounted for other factors, such as the Polish Central Bank's base rate, the number of dwellings built, and new mortgage loans, in their model (Melnychenko et al, 2022). However, Wolski (2022) did not find evidence of a correlation between real estate prices and inflation in Poland during the same period, highlighting the need to explore real estate's potential as an inflation hedge in the country.…”