Michael McCord

The implications of mortgage finance on housing market affordability

Purpose - The downturn in the residential housing market in Northern Ireland (NI) has been the most pronounced of any UK region, with house prices contracting circa 40 per cent between 2007Q3 and 2009Q4. The downturn at first glance appears to have increased the “ability to afford” however this is nonetheless a “false dawn”. Significant deposit levels coupled with a more prudent lending culture has ensured that housing affordability remains a primary policy concern. The purpose of this paper is to empirically analyse the interrelationships between mortgage liquidity and housing affordability in NI during the boom-bust cycle in the residential property market. Design/methodology/approach - The paper analyses mortgage-lending statistics for NI in the period 1993-2009, using time series panel data. House price data are drawn from the University of Ulster House Price Index over the same time series. To facilitate analytical interpretation and outcome analysis, quantitative evaluation is applied within a first-time buyer (FTB) affordability framework. Findings - This study finds that the relationship between mortgage finance and affordability has been driven by deregulation of the mortgage market contributing to the rise in house prices and affordability pressures during the market up cycle. More recently, ongoing liquidity constraints within the financial sector are impairing recovery in the residential property market culminating in heightened concerns of both purchase and “deposit gap” affordability. The key findings suggest that the new significant capital requirement needed to access the housing market will inevitably prolong affordability pressures for the foreseeable future. Originality/value - This paper contributes to affordability debate in two ways. First, it examines the effect of both liberalised and contracted patterns of mortgage finance on affordability and argues that conventional approaches appear to present a “false dawn” for FTBs in NI. Second, the paper demonstrates that affordability post-financial crisis has shifted in genre towards a purchase and deposit gap (lag time) issue.

Prediction accuracy in mass appraisal: a comparison of modern approaches

The advancement of computational software within the last decade has facilitated enhanced uptake of mass appraisal methodologies by the valuation and prediction accuracy in computer-assisted mass appraisal community for price modelling, estimation and tribunal defence. Applying a sample of 2694 residential properties, this paper assesses and analyses a number of geostatistical approaches relative to an artificial neural network (ANN) model and the traditional linear hedonic pricing model for mass appraisal valuation accuracy and price estimation purposes. The findings demonstrate that the geostatistical localised regression approach is superior in terms of model explanation, reliability and accuracy. ANNs can be shown to perform very well in terms of predictive power, and therefore valuation accuracy, outperforming the traditional multiple regression analysis (MRA) and approaching the performance of spatially weighted regression approaches. However, ANNs retain a ‘black box’ architecture that limits their usefulness to practitioners in the field. In relation to cost-effectiveness and user-friendly applicability for the valuation community, the MRA approach outperforms the ‘black box’ nature of the ANN technique, with the geographically weighted regression approach providing the best balance of outright performance and transparency of methodology. It is this spatially weighted approach utilising absolute location which appears to represent the way forward in developing the practice of mass appraisal.

The potential of artificial neural networks in mass appraisal: the case revisited

Purpose – The aim of this paper is to investigate the comparative performance of an artificial neural network (ANN) and several multiple regression techniques in terms of their predictive accuracy and capability of being used within the mass appraisal industry.Design/methodology/approach – The methodology first tested that the data set had neglected non‐linearity which suggested that a non‐linear modelling technique should be applied. Given the capability of ANNs to model non‐linear data, this technique was used along with an OLS regression model (baseline model) and two non‐linear multiple regression techniques. In addition, the models were evaluated in terms of predictive accuracy and their capability of use within the mass appraisal environment.Findings – Previous studies which have compared the predictive performance of an ANN model against multiple regression techniques are inconclusive. Having superior predictive capability is important but equally important is whether the technique can be successfu...

Modelling the effect of energy performance certificate rating on property value in the Belfast housing market

Purpose - – This study aims to investigate the relationship between energy performance and property sale price in the Belfast housing market. How energy efficiency is contributes to sale price and thus appraisal value is of growing concern. The obligatory measurement of energy efficiency in private dwellings seeks to encourage improvements in energy performance. This may be capitalised into property value and may stimulate demand for energy-efficient buildings. However, the relationship between energy performance and property value remains nebulous, complex and under-researched – in part due to data limitations. Design/methodology/approach - – Using a hedonic pricing specification, this paper measures the effect of energy performance certificates (EPCs) on residential property value. It examines the relationship between 3,797 residential sales transactions across the Belfast housing market, showing the percentage effect on property value with respect to energy performance. Findings - – The results indicate a small but positive relationship between better energy performance and higher selling prices. Nonetheless, the findings point towards strong preference, demand tastes and a complex intra-relationship between EPCs and their capitalisation into property value. Pertinently, the findings point towards any energy-efficient-related price effect affect to be marginal alongside more “quality”-based market behaviours. Research limitations/implications - – Analogous with other studies, data deficiencies and a lack of incorporating price determining variables (missing determinants) such as heating type and glazing type introduces omitted variable bias and endogeneity problems within the model structure. Originality/value - – This paper contributes to emerging literature and policy debate surrounding the measurement and implementation of energy-efficiency certification through a greater understanding of energy performance characteristics in determining property value.

Effect of public green space on residential property values in Belfast metropolitan area

Purpose – The aim of this study is to add to the emerging knowledge base in the UK and be of relevance to land use planners and all stakeholders in property taxation. Urban green open spaces are valuable environmental resources often associated with positive influences for quality of life and property value. Design/methodology/approach – Using a hedonic pricing specification, this paper measures the proximate effect of public green space on residential property value. It examines the relationship between 3,854 residential sales transactions and public green spaces across the Belfast housing market gathered from Land and Property Services throughout the year 2011 showing the percentage effect on property value with respect to distance to public green spaces. Findings – The results show that, ceteris paribus, urban green space has a significant positive impact on proximate residential properties sale price for the terrace and apartment sectors and that terrace and apartment property located closer to public...

Equities or real estate? An international evaluation of listed property markets

Purpose – The purpose of the paper is to examine the role of securitised real estate within the confines of a multi‐asset investment portfolio and to identify if indeed securitised real estate can afford investors the desired investment benefits of direct property investment whilst mitigating many of the recognised barriers and risks.Design/methodology/approach – The paper employs a suite of analytical techniques; lead‐lag correlations are utilised to examine market dynamics between listed and direct real estate markets across jurisdictions. Grainger causality and co‐integration techniques are applied to examine the nature and extent of relationships between investment markets with optimal portfolio analysis utilised to explore the role of securitised real estate and the optimum weighting allocation within the confines of a multi‐asset investment portfolio.Findings – The findings demonstrated the unresponsive nature of direct real estate markets relative to listed real estate markets – in some jurisdictio...

Belfast's iron(ic) curtain: “Peace walls” and their impact on house prices in the Belfast housing market

Purpose – Belfasts “peace walls” exist to physically segregate and provide a measure of security to the communities on the religious divide in Northern Ireland. Whilst they do ostensibly achieve this aim, it may well be that these structures have the capacity to prevent the restoration of normal community interactions and market processes and may also be providing their benefits at a high price with regard to issues such as house price reduction. Indeed, the effect of these structures on surrounding residential property values remains somewhat of an unknown quantity. This paper therefore measures the effect of proximity to locations with social and political conflicts. The paper aims to quantify and measure the disamenity implications and costs of artificial barriers (peace walls) within the Belfast housing market. Design/methodology/approach – This paper attempts to measure the disamenity effect of peace walls on house prices, primarily focusing on the effect of distance, calculated using a hedonic pric...

Understanding delays in housing construction: evidence from Northern Ireland

Purpose – The purpose of this paper is to investigate delay factors within private housing construction in Northern Ireland. Delays are inherent throughout the construction industry and create major difficulties in terms of project performance and client satisfaction. Whilst a voluminous body of international literature has investigated pertinent delay factors within construction projects, there is a relative paucity of research which offers a more delineated exploration of delay factors affecting private housing development schemes, particularly in the UK context. Design/methodology/approach – This study applies questionnaire survey research to examine the relative importance of 75 delay attribute factors for housing construction projects in Northern Ireland. The approach applies both a relative rank and principal component analysis to distil the key factors impinging upon the delay process in housing construction. Findings – The key finding from this research is that delays within the housing constructi...

European emerging real estate markets: Re-examining investment attributes and framing opportunities

Purpose - – The purpose of this paper is to improve the transparency of European emerging real estate market dynamics and performance attributes in the wake of the 2007-2008 global financial crisis (GFC). The paper examines the extent and nature of inter-relationships between three emerging real estate markets namely, the Czech Republic, Hungary and Poland as well as determining the rationale for including emerging real estate markets within a Pan-European investment portfolio. The paper affords a timely update following the reinstatement of lending provision for European emerging real estate investment markets in 2014. Design/methodology/approach - – The paper employs lead-lag correlations and Grainger causality to examine inter and intra relationships across three emerging European real estate markets, namely the Czech Republic, Hungary and Poland over the period 2006-2014. Optimal portfolio analysis is undertaken to explore the role of emerging real estate markets within the confines of a multi-asset investment portfolio as well as a Pan-European real estate investment portfolio. Findings - – The findings demonstrate the opportunities afforded by the European emerging real estate markets in terms of both performance enhancement and risk diversification. Significantly, the findings highlight the lack of “uniformity” across the European emerging markets in terms of their investment potential, with Grainger causality confirming that the real estate markets in the Czech Republic, Hungary and Poland are not endogenous functions of one-another’s performance. Practical implications - – This paper makes a considered contribution to the analytical interpretation of European emerging property market performance across the real estate cycle. The research demonstrates that the real estate markets in the Czech Republic, Hungary and Poland exhibit specific investment characteristics which differentiate them from the more developed real estate markets across Europe. Indeed emerging markets have the propensity to serve as both a risk diversifier as well as performance enhancer within the confines of a pan-European real estate investment portfolio. However, as the research clearly articulates, intricate understanding of the attributes afforded by the different emerging markets as well as the divergence in sectoral dynamics/performance is integral to portfolio allocation strategies. Originality/value - – Robust academic research on Europe’s emerging real estate markets has been hampered by deficiencies in data provision. This study makes an innovative and timely contribution to redressing the research vacuum through delineated examination of the performance dynamics of three markets namely, the Czech Republic, Hungary and Poland, across the real estate cycle. The role and function of emerging markets is depicted within the confines of a Pan-European direct real estate investment portfolio at the all property level and in terms of sectoral specific allocations comprising retail, office and industrial. The explicit added value of the paper is the propensity to bench-mark the performance of emerging markets real estate markets on a like-for-like basis with developed real estate markets across Europe facilitating the exploration of the role and function of emerging real estate markets within a Pan-European investment context.

Understanding rental prices in the UK: a comparative application of spatial modelling approaches

Purpose - – Accounting for locational effects in determining price is of fundamental importance. The demise of the mainstream property market has culminated in increasing appetite and investment activity within the private rental sector. The primary purpose of this paper aims to analyse the local variation and spatial heterogeneity in residential rental prices in a large urban market in the UK using various geo-statistical approaches. Design/methodology/approach - – Applying achieved price data derived from a leading internet-based rental agency for Belfast Northern Ireland is analysed in a number of spatially based modelling frameworks encompassing more traditional approaches such as hedonic regressive models to more complex spatial filtering methods to estimate rental values as a function of the properties implicit characteristics and spatial measures. Findings - – The principal findings show the efficacy of the geographically weighted regression (GWR) technique as it provides increased accuracy in predicting marginal price estimates relative to other spatial techniques. The results reveal complex spatial non-stationarity across the Belfast metropole emphasizing the premise of location in determining and understanding rental market performance. A key finding emanating from the research is that the high level of segmentation across localised pockets of the Belfast market, as a consequence of socio-political conflict and ethno-religious territoriality segregation, requires further analytical insight and model specification in order to understand the exogenous spatial and societal effects/implications for rental value. Originality/value - – This study is one of only a few investigations of spatial residential rent price variation applying the GWR methodology, spatial filtering and other spatial techniques within the confines of a UK housing market. In the context of residential rent prices, the research highlights that a soft segmentation modelling approaches are essential for understanding rental gradients in a polarised ethnocratic city.