The Long-Run Relationship Between House Prices and Inflation in South Africa: An Ardl Approach

Abstract

This paper investigates whether house prices provide a suitable hedge against inflation in South Africa by analysing the long-run relationship between house prices and the prices of non-housing goods and services. Quarterly data series are collected for the luxury, large middle-segment, medium middle-segment, small middle-segment and the entire middle segment of house prices, as well as, the consumer price index excluding housing costs for the period 1970:Q1-2011:Q1. Based on autoregressive distributed lag (ARDL) models, the empirical results indicate long-run cointegration between the house prices of all the segments and the consumer price index excluding housing costs. Moreover, the long-run elasticity of house prices with respect to prices of nonhousing goods and services, i.e., the Fisher coefficient is greater than one for the luxury segment, virtually equal to one for the small middle-segment, and less than one for the large and medium middle-segments, as well as the affordable segments. More importantly though, the estimated Fisher coefficients are not statistically different from unity -a result consistent with the proposed theoretical framework relating housing prices and consumer prices excluding housing expenditure. In general, we infer that house prices in South Africa provide a stableinflation hedge in the long-run.

The effects of political, economic and financial components of country risk on housing prices in South Africa

“…It was found that shocks in country risk components lasted longer in the large segment of the property market. This is consistent with Inglesi-Lotz and Gupta (2013) in which luxury housing segment was associated highest slope coefficient. Additionally, political risk has a short run effect on various segment of housing indices.…”

“…The article concluded that a long-run relationship existed between the housing market and the components of country risk, where the housing price indices increase with both economic and political risk but decrease with financial risk. Similar evidence in literature was Inglesi-Lotz and Gupta (2013) who established long run relationship among various housing segments and inflation. It was found that shocks in country risk components lasted longer in the large segment of the property market.…”

Urban House Prices and Business Establishment in Malaysia: A Sectoral Approach

“…The ARDL approach has been used by several researchers to analyse housing market dynamics (e.g., Bangura & Lee, 2020) and to test the relationship between house prices and other economic and political variables (e.g., Apergis et al, 2015;Inglesi-Lotz & Gupta, 2013).…”

International Real Estate Review

“…Thus we hypothesize two-way causality between GDP and property prices. Inglesi-Lotz et al (2013) state that house prices in South Africa provide a stable, but quantitatively minor, inflation hedge in the long-run; hence, a one way causality between inflation as measured by changes in the WPI to property prices is hypothesized. Lipscomb et al (2003) study real estate prices in Mexico, and believe that the increase in real estate prices will lead to an increase in the exchange rate; however, with increases in the exchange rate, real estate prices increase even more so.…”