House Price Determinants in Sydney

Abstract

Purpose -This paper aims to study the main determinants of house price increase in Sydney using quarterly data for the period of March 1994 to June 2014. The paper examines whether variables such as population growth, family income, mortgage rate and supply factors that contribute to the changes of Sydney house prices.Design/methodology/approach -The paper uses reduced-form equation for house price function derived on the supply and demand functions for owner-occupied housing (DiPasquale and Wheaton, 1994). Multiple regression analysis is applied to derive the significant variables effect on house prices. Collected time series variables are tested stationary using Augmented Dickey-Fuller test.Findings -Statistical results suggest that the lack of house supply, mortgage rate, and net overseas migration are the main attributes of house price appreciation in Sydney. House prices are largely affected by the price movements from the previous periods. Multiple regression analysis is one of the methods to test causal relationship of house prices with other variables.Research limitations/implications -There are limitations using multiple regression analysis (MRA) One of the difficulties of using MRA is to handle problems with multicollinearity and non-linearity among variables. It is worthwhile to try Vector Autoregressive (VAR) or nonlinear models that may help to solve the problem of building in regression statistics.Practical implications -The findings would suggest that measures to increase of housing supply may help to prevent house price bubble.Originality/value -The research updates the investigation of house price determinants and tests the using of MRA method on the nonlinear variables.