Geoffrey Meen

Regional House Prices and the Ripple Effect: A New Interpretation

In Britain, house prices exhibit a distinct spatial pattern over time, rising first in a cyclical upswing in the south-east and, then, spreading out over the rest of the country. This is known as the ripple effect. Although previous studies have shown that, statistically, the ripple effect is a valid representation of the data, providing convincing economic explanations is less straightforward. Some studies have concentrated on the role of migration; others argue that the pattern reflects different regional growth rates. This paper suggests that structural differences in regional housing markets are important. A new model of house prices for the regions in Great Britain is devised and estimated in which the coefficients exhibit non-random spatial patterns. The coefficients reflect structural differences between the regions and it is shown, through simulations, that the model can generate a ripple effect irrespective of regional growth patterns.

Spatial aggregation, spatial dependence and predictability in the UK housing market

Abstract Most time‐series studies of UK housing markets are carried out on national data. However, housing markets may be better characterised as a series of interconnected sub‐national markets. In this paper, we use methods taken from the spatial econometrics literature and from cointegration to explore the nature of spatial interactions in UK regional house prices and housing starts. The three central spatial issues are the extent to which markets are (a) homogeneous (b) dependent and (c) convergent, across the English regions. We find that housing starts equations are remarkably similar across regions and hence construction can be characterised as a national market. There is a high degree of spatial dependence in terms of both house prices and starts; dependence is uni‐directional in the former, but not the latter. Finally, cointegration results suggest that regional prices converge to long‐run relationships, despite major short‐term variation.

Social Behaviour as a Basis for Modelling the Urban Housing Market: A Review

This paper considers how empirical models of urban housing markets might be constructed as a basis for policy analysis. It is suggested that this is fundamentally more difficult than national or regional models, because of particular characteristics of urban markets-notably, the importance of social interactions, non-linearity and segregation. However, recent advances in the modelling of social interactions point to a possible way forward. The paper begins by reviewing some aspects of this literature and shows how the models generate non-linearities consistent with recent work on thresholds in local housing markets. Simple cellular automata are also used to demonstrate this point and how segregation may arise. A review follows of work on discrete choice models, which include social interactions within their structure. Bringing all the tools together, it is suggested that there is now the potential to construct urban housing models, although a great deal of theoretical and empirical work remains to be done.

Ten Propositions in UK Housing Macroeconomics: An Overview of the 1980s and Early 1990s

During the last ten years, macroeconomists have increasingly come to realise that there are important interactions between housing and the wider economy. In some cases, this realisation has come too late to avoid the severe oscillations in the economy that have characterised the period since the mid-1980s. This paper uses a macroeconometric model, specifically designed to capture the interactions, in order to reflect on the experience of the 1980s and early 1990s and to draw theoretical, empirical and policy conclusions in terms of ten propositions.

On the Aggregate Housing Market Implications of Labour Market Change

Labor markets in the United Kingdom have undergone important structural changes in recent years. Given the close relationship between labor and housing markets, these changes are likely to have had knock-on effects to housing. This paper examines the quantitative evidence in this area in terms of aggregate housing demand and house prices, set in a life-cycle framework. The paper finds evidence of structural change in the 1990s in the traditional relationships used to predict house price movements which can, at least partly, be attributed to changes in the labor market. Copyright 1998 by Scottish Economic Society.

Housing Cycles and Efficiency

This paper has four objectives. First, a small model of the UK housing market is constructed, including equations for house prices, housing starts, construction costs and interest rates. The model is used in an analysis of housing market cycles, employing techniques developed for the analysis of general business cycles. Second, the model is used to consider housing market efficiency. Third, the model is extended to examine the relationship between house prices and property transactions. Finally, the role of monetary policy in the generation of housing cycles and stability is discussed.

Ten New Propositions in UK Housing Macroeconomics: An Overview of the First Years of the Century

In the mid 1990s, Meen set out a series of propositions concerning the relationship between housing and the macro economy during the 1980s and early 1990s. This paper provides 10 further propositions for the early years of this century, taking into account recent research and policy concerns. The first five propositions concern housing market risk, whereas the remaining issues deal with the sustainability of homeownership. The empirical evidence presented finds that there is limited evidence for bubbles over the past 10 years and models of house prices are stable. Furthermore, housing possessions are unlikely to fall to the levels observed in the early 1980s. It is also suggested that the private rental market may not expand at the same rate as in the past 10 years, but there are risks to homeowners down the income distribution. Finally, the main beneficiaries of new affordability targets may be existing rather than new households.

On the Economics of the Barker Review of Housing Supply

The Barker Review of Housing Supply was set up in order to address some of the weaknesses that might arise if the UK were to join EMU. The Final Report has quickly become one of the most important documents in housing policy for many years. Broadly, the Review examined the reasons for the weakness of English housing supply. For example, during the 1990s, despite the boom in house prices, private housing construction hardly grew at all. The weakness of supply is one reason why house prices in the UK have risen much faster than the European average. In response to the Reviews conclusion that the land-use planning system is the main cause of supply shortages, England will be introducing affordability targets. Regional planning authorities will be required to release more land if they expect targets not to be met. Economic analysis and models will become central to the assessment. The Barker Review provides a good example of how economic analysis can be used to inform the policy debate. This paper looks at the economics underlying the Barker Review, concentrating on an analysis of supply elasticities and the required increases in construction to meet price targets. The latter has been particularly controversial since, under some assumptions, the analysis implies that housing construction in England needs to be approximately doubled in order to bring house price inflation down to European levels.

Local Housing Supply and the Impact of History and Geography

This paper considers the impact of existing land use patterns on housing supply price elasticities in local areas of England, under existing planning policies. The paper demonstrates that, despite common national planning policies, local supply responses to market pressures vary considerably, because of differences in historical land uses. The study area covers the Thames Gateway and Thames Valley, which lie to the east and west of London respectively. However, whereas the latter is one of the wealthiest areas of England, the former includes some of the highest pockets of deprivation and was a government priority area for increasing housing supply. Due to differences in historical land use and geography, the price elasticity in the least constrained area is approximately six times higher than the most constrained.

Modelling Sustainable Home-ownership: Demographics or Economics?

According to recent official projections, 4.4 million new households will be formed in England between 1991 and 2016. These estimates are based on a detailed analysis of demographic trends, but take no account of the effect of potential changes in economic conditions, particularly on the owner-occupancy rate. In this paper, we propose a new approach to modelling sustainable owner-occupancy which places less emphasis on demographics, but considers in more detail the role of market mechanisms through changes in house prices and rates of new construction.