A research proposal about house prices in the UK
时间:2010-08-19 19:34:22 来源:www.ukthesis.org 作者：英国论文网 点击:315次
A research proposal about house prices in the UK Area and context of research: The dissertation aims to find the determinants of house prices in the UK from 1980 to 2008. It also seeks the relationship between house prices and fundamental factors such as: real disposable income, interest rates, unemployment rates, and population, and to find out whether there was a price bubble in the housing market during that period. Understanding the determinants of house prices is very important as expenditure on new homes is a key component of consumption and aggregate demand and the house is the major asset for most households. Collapse in house markets may lead to economic crisis as has just happened in the USA. There are many previous studies which have tried to explain the relationship between house prices and fundamental factors in many countries such as: the USA, Central and Eastern Europe, Australia. They found that some fundamental factors have significant impact on house prices whilst some do not. Moreover, the sign and significance of the relationship would be different depending on country, method, economic circumstance and period of time. This dissertation tries to explore the factors that affect UK house prices, the significance and the sign of their relationship in the period 1980-2008. Literature review: Gert, B. and Mihaljek, D. (2007) Determinants of House Prices in Central and Eastern Europe. Comparative Economic Studies. vol. 49, iss. 3, pp 367-389 This study, which has the same main goal as my dissertation, used the quantitative method to find the relationship between house prices and fundamental factors such as: disposable income, interest rates, housing credit, demographic factors and financial institution, housing quality. The study suggested that house prices are modelled by the basic theory of demand and supply. The key factors that determine the demand for housing are house prices, disposable income, demographic and labour market factors, the expected rate of return on housing, housing quality and other demand shifters. Financial regulation and growth of bank credit also play a role in affecting house prices, which was reflected by a housing boom in the late 1980s in the period of financial liberalisation in the UK. On the other hand, supply of housing is a function of house price, as is the real cost of construction.#p#分页标题#e# From these two equations, the function of house prices will be detectible. However, the article suggests that house prices fluctuate significantly due to the variation of demand and supply side factors and key elasticities tend to be higher in small countries than in large ones. In order to find the relationship between house prices and fundamental factors, the study created a specific equation which explains the relationship between real house prices and real interest rates and real disposable income. Then, one by one, it added other variables which represent remaining fundamental factors to avoid muliticollinearity. Income, housing credit, population, labour force, real wage, and deregulation in housing financial institutions have a positive relationship with house prices whilst interest rates, unemployment, equity price are negatively correlated with house price. Abelson, P. et al (2005) Explaining house prices in Australia: 1970-2003. The Economic record. vol. 81, iss. special, pp.96-103 This paper also focused on the factors affecting house prices, which is the same as the objectives of my dissertation. This study focused on house prices in Australia in the period 1970-2003. However, unlike other studies, they developed different models which separate short and long term movement of house prices. Their models were called long run equilibrium and short run asymmetric error correction models. Moreover, they cover the lagged, speculative effect and other disequilibria in housing market. The approach was based on the idea that long run house prices are determined by fundamental factors such as real disposable income, consumer price index and that the short run house prices may fluctuate around the equilibrium position but continue to readjust to the equilibrium position. However, the readjustment process is quicker when house prices are rising rather than falling or flattening because house buyers tend to buy when prices are rising with the fear that they will be higher in the future. The study supported the theory that in the long run house prices are strongly affected by real disposable income, unemployment, real interest rates, equity prices, CPI and supply of housing and all the sign of variables are the same as expected. In the short run, this paper found significant time lags in adjustment to equilibrium and the time of adjustment is varied depending on the movement of house prices. Jacobsen, D. and Naug, B. (2005) What drives house prices. Economic Bulletin. vol. 76, iss. 1, pp 29-42. This paper tried to answer two questions similar to those of my dissertation, which is finding what the most important fundamental factors of house prices are, and examining whether there is a house price bubble in housing market. It found that interest rates, housing construction, unemployment and household income are the most fundamental factors of housing markets. The study did not find the relationship between household debt and house prices and between house prices and population and demographic factors. It also found that higher interest rates will lead to house prices falling more in the short term than the long term due to the delay of people purchasing houses and vice versa. This study also provided an approach to examining whether house prices were overvalued by suggesting that if some of the price rises in the past reflected a bubble, it would be shown by the instability of the coefficient of interest rates and other factors in the model. OECD (2005) suggested that house prices in the UK were overvalued by 30% in 2003/04 as a result of the so-called housing bubble. However, Muellbauer and Murphy (2008) suggested that the high housing price in 2003/04 was not due to the bubble effect but to strong growth of income, high population growth and the result of high demand and lack of supply of housing in the UK since 1997. This approach will be applied in my dissertation to examine whether there is a price bubble in the UK housing market. #p#分页标题#e# Levin, E. and Wright, R. (1997) The impact of speculation impact of speculation on house prices in the United Kingdome. Economic Modeling. vol. 14, iss. 4; pp. 567-585 This paper focused on the factors that affect house prices, which are similar to the goal of my dissertation; however, this paper provided a closer look at the effect of speculation on house prices. It concentrated on existing homeowners who intend to move to a new higher quality house. If there is expectation of rising house prices in the future, there will be a gap between time of purchase and time of sale because house movers would want to secure their right of purchase and delay the timing of the sale of their old house. The present value of past growth in house prices was added into the regression model as people expect a change in prices in the present based on past changes in house prices. The study found that the excess demand of housing due to speculation would lead to an increase in house prices. However, the paper suggested that only the higher house prices increased whilst the lower quality house prices fall because people tend to move to higher quality houses. #p#分页标题#e# Research question/hypothesis: The main question of the dissertation is finding the determinants of house prices in the UK in the period 1980-2008. The main question can be broken down into smaller questions such as: - Whether the main fundamental factors such as real disposable income per capita, interest rates, unemployment rates, population, new build, average household size, real residual investment, age profile of population, growth in mortgage credit, consumer expectation, housing stock, and housing policy have impacted on house prices. -Finding the relationship and significance between house prices and each fundamental factor. -What are the most fundamental factors influencing house prices? -Whether expectation plays a role in determining house prices. -Whether house prices in the UK in the period 1980-2008 were overvalued. Method and data to be used: The dissertation will use quantitative methods to answer the main question. The Ordinary Least Square (OLS) regression model will be used to find the relationship between house prices and fundamental factors and test hypotheses to answer the questions above. The model is based on the standard variables, which have been used in previous literature. The left hand side (dependant variable) will be house price index and the right hand side (independent variable) will include: real disposable income per capita, interest rates, unemployment rates, population, new build, average household size, real residual investment, age profile of population, growth in mortgage credit, consumer expectation, housing stock, and housing policy. The dummy variable will be used for housing policy variables at which time of policy was carried out and will be put as 1 and otherwise, it will be 0.
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