House Price Responsiveness of Housing Investments Across Major European Economies

37 Pages Posted: 29 Aug 2012

See all articles by Luca Gattini

Luca Gattini

European Union - European Investment Bank

Ioannis Ganoulis

European Central Bank (ECB) - Directorate General Economics

Date Written: August 13, 2012

Abstract

In comparison with the large literature on house prices, housing investments have been studied far less. This paper investigates the behavior of private residential investments for the six largest European economies, namely: Germany, France, Italy, Spain, the Netherlands and the United Kingdom. It employs a common modelling structure based on an error correction approach and country specific models. First, co-integration among the parsimoniously specified set of fundamental variables is detected in all countries. Second, cross-country differences are found in the responsiveness of private residential investments to real prices and to other relevant factors. Germany has the strongest response of private residential investments to house price changes whereas Italy shows the lowest responses. In Spain investments seem to be primarily related to their lagged component and short-term changes in house prices, and show a poor relationship with deviations from long-term fundamentals. In some countries, the lagged component of residential investments seems to point to a high persistency effect.

Keywords: housing investments, elasticity, co-integration, error-correction mechanism

JEL Classification: C2, R30, E22

Suggested Citation

Gattini, Luca and Ganoulis, Ioannis, House Price Responsiveness of Housing Investments Across Major European Economies (August 13, 2012). ECB Working Paper No. 1461, Available at SSRN: https://ssrn.com/abstract=2128466 or http://dx.doi.org/10.2139/ssrn.2128466

Luca Gattini (Contact Author)

European Union - European Investment Bank ( email )

98-100 Boulevard Konrad Adenauer
L-2950
Luxembourg

Ioannis Ganoulis

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

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