Speculation in the Housing Market?

Abstract

This paper presents and tests a model of house price speculation. The mechanisms by which price speculation may occur in the housing market are described and formalised. A model of house prices is constructed that allows for speculation. Aspects of this model are tested using time-series data for the UK and the Greater London area (1969-95). Overall, the analysis presents some evidence of the process of speculation as a possible determinant of house prices in the London and UK-wide housing markets.

On land supply and the price of residential housing

“…His study estimates speculation by observing the rate of change in real housing prices over the past four quarters (t to t-4) and subtracting from this rate the rate of change in housing prices over the four quarters prior to this period (t-4 to t-8 ), concluding that speculative demand has a significant but modest impact on housing prices. 2 Levin and Wright (1997) also formalize the mechanism by which price speculation may occur in the housing market and present some evidence of the process of speculation as a possible determinant of housing prices in the London and UK housing markets. To approximate actual homeownership costs, real mortgage interest rates and speculative demand 3 are included into the current study.…”

Sustainable Urban Property Development and Neighbourhood Dynamics

“…The price increase comprises two elements: (1) changes in actual quality -amenities as well as transportation; (2) speculative changes in market value based on future price expectations and without changes in actual quality [12,13]. (A more profound coverage is provided in the next section.)…”

Equilibrium between interest payments and income in the housing market

“…Evidence indicates that both short-run fundamentals and long-run fundamentals have an impact on houses prices. In the short term, significant upward or downward movements ('shocks') appear, due to speculative or psychological effects (for example, see Reichert 1990;Levin and Wright 1997;Meen 1998;Hort 1998;De Vries and Boelhouwer 2005). For example, when prices continue to increase, consumers tend to act swiftly in anticipation of further increases.…”