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Is there long-run convergence of regional house prices in the UK?

Author

Listed:
  • Mark J. Holmes

    (University of Waikato)

  • Arthur Grimes

    (Motu Economic and Public Policy Research)

Abstract
This paper investigates the long-run convergence of regional house prices in the UK. Using a variety of econometric methods, existing studies have failed to reach a consensus on whether or not regional house prices are cointegrated and exhibit long-run constancy relative to each other. We propose the application of a new test that combines principal components analysis with unit root testing to throw new light on the regional convergence debate. Using mix-adjusted quarterly house price data for 1973-2005, we find that existing unit root and cointegration methodologies indicate the presence of multiple stochastic trends with, at best, very weak evidence of long-run convergence. However, testing for the stationarity of the largest principal component based on regional house price differentials suggests that all UK regional house prices are driven by a single common stochastic trend and can be regarded as exhibiting strong convergence in the long-run. Further analysis suggests there is a high degree of persistence in regional house price differentials.

Suggested Citation

  • Mark J. Holmes & Arthur Grimes, 2005. "Is there long-run convergence of regional house prices in the UK?," Working Papers 05_11, Motu Economic and Public Policy Research.
    • Handle: RePEc:mtu:wpaper:05_11
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    File URL: https://motu-www.motu.org.nz/wpapers/05_11.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    House prices; convergence; unit roots; cointegration; principal components;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General

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