Is There Long-Run Convergence of Regional House Prices in the UK?

Motu Working Paper No. 05-11

22 Pages Posted: 26 Jun 2006

See all articles by Arthur Grimes

Arthur Grimes

Motu Economic and Public Policy Research Trust

Mark J. Holmes

University of Waikato - Management School, Department of Economics

Date Written: August 2005

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.

Keywords: House prices, convergence, unit roots, cointegration, principal components

JEL Classification: C5, R0

Suggested Citation

Grimes, Arthur and Holmes, Mark J., Is There Long-Run Convergence of Regional House Prices in the UK? (August 2005). Motu Working Paper No. 05-11. Available at SSRN: https://ssrn.com/abstract=911073 or http://dx.doi.org/10.2139/ssrn.911073

Arthur Grimes (Contact Author)

Motu Economic and Public Policy Research Trust ( email )

19 Milne Terrace
Island Bay
Wellington 6002
New Zealand

Mark J. Holmes

University of Waikato - Management School, Department of Economics ( email )

Hamilton
New Zealand

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
128
Abstract Views
929
rank
240,007
PlumX Metrics