Determinants and Dynamics of New Zealand Housing Prices: National- and Regional- Level Analyses
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In this study we set out to find if macroeconomic factors have any strong association with house prices in New Zealand. To conduct our empirical analysis, we used a unique dataset with Residential Property Prices Indices with monthly frequency from SIRCA. The data sample spans 13 years from December 2003 to January 2017. Long run (cointegration) relationships and short run (error correction) relationships are estimated across 14 regions within New Zealand. The results of our empirical study indicate that house prices at both national and regional level between 2003 and 2017 are positively determined by household income in the long run. The impact of mortgage rate on housing indices is different for before and after crises subperiods: positive influence before and negative after crisis. In short-term relationships between changes in residential property price indices and their determinants at national level indicate that household income and population growth positively influence property prices, while mortgage rate increases lead to a decrease in house prices. Regions exhibit different short run behaviours across New Zealand in the responsiveness to the economic and demographic indicators change. We also analyse whether the movement of price in Auckland spillover to the neighbour Auckland cities and the other main cities of New Zealand. To do that, we estimate multivariate VAR models and then conduct a Granger causality test, impulse response functions and Variance Decomposition. Results suggest that the neighbouring Auckland cities are highly affected by the price trends and shocks in Auckland. When we consider the system of three main cities, we find that the price movement in Auckland shows substantial independence, while it can be useful in explaining the housing prices in Wellington and Hamilton. Additionally, we find that the movement of prices in Wellington and Auckland spillover to Hamilton.