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Housing Market Dynamics

Time: Mon 2023-06-12 10.00

Location: E3, Osquars backe 14, Stockholm

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Language: English

Subject area: Real Estate and Construction Management

Doctoral student: Sviatlana Engerstam , Fastighetsekonomi och finans

Opponent: Docent Peter Palm, Malmö Universitet

Supervisor: Docent Abukar Warsame, Fastighetsekonomi och finans; Professor Mats Wilhelmsson, Fastighetsekonomi och finans

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The dynamics of housing markets constitute a complex phenomenon. The body of research is vast and includes thousands of studies done on the national and international level. Empirical evidence indicates that housing markets differ in local institutional arrangements and that these might affect the ways they develop over time. To analyze housing market dynamics in various institutional environments and to increase our understanding of them is the main objective of this thesis.

The scope of research includes analysis of relevant theories and empirical models that might explain development of house prices over the long run. Given that prices affect housing construction, this thesis also aims to deepen understanding of the impact of the relationship between new construction and underlying fundamentals, together with various institutional arrangements that might differ between countries. In particular, they include bank lending policies, valuation methods for mortgage purposes, different regulatory measures like rent control, as well as land and building policies.

The Swedish apartment market was chosen for empirical analysis. The analysis is carried out by a combination of qualitative and quantitative methodology and applies several research methods, such as systematic literature review, and panel data analysis with application of advanced econometric techniques like Dynamic Ordinary Least Squares, Fixed and Random Effects and Seemingly Unrelated Regressions. Four studies are carried out using these methodologies.

The results indicate that the interest rate, disposable income and population growth seem to be major determinants of house prices according to studies found in the empirical literature (Paper 1). The study also classifies house price determinants in relation to the size of their elasticities. However, fundamental factors cannot always provide an explanation for the deviations in house price dynamics in different countries, whereas the institutional environment might do so (Paper 2). The analysis demonstrates that land prices and building policies, along with a number of market fundamentals, affect the average size of an apartment in new residential construction (Paper 3). In the presence of rent control, the rent or price level does not contribute by adding new units to the total housing stock. In addition, the displacement effect occurs primarily in the market’s rental sector and not in the tenant-owned apartments segment (Paper 4).

This research contributes to a better understanding of housing markets dynamics and suggests policy implications that might reduce the risks for housing bubbles and improve the socio-economic development of the society over the long run.