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Multifamily Residential Asset and Space Markets and Linkages with the Economy

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  • Martin HOESLI

    (GSEM, University of Geneva, Swiss Finance Institute, University of Aberdeen and Kedge Business School)

  • Alain CHANEY

    (University of Geneva or IAZI AG)

Abstract

We show that a proper assessment of the linkages between real estate markets and the economy requires state of the art modelling techniques, which treat economic variables endogenously and allow for a number of long run relationships. We therefore use a long run structural modelling approach, which incorporates equilibrium relationships that are predicted by economic theory, in an otherwise unrestricted vector autoregressive model. The application of this approach to Swiss multifamily residential data shows that four long run equilibrium relations exist among inflation, long- and short-term interest rates, real M2, real GDP, real construction expenditures, real market rents, and capitalization rates. Disturbances to the equilibria last for approximately five years before they completely vanish. The analysis of the short run dynamics additionally suggests that the linkages between real estate and economic variables are bi-directional. Our findings should provide for a better understanding of the linkages and feedback mechanisms between a developed economy and its real estate markets and thereby help in the identification and quantification of both market interventions by policy makers and risks borne by investors.

Suggested Citation

  • Martin HOESLI & Alain CHANEY, 2014. "Multifamily Residential Asset and Space Markets and Linkages with the Economy," Swiss Finance Institute Research Paper Series 14-32, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1432
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    File URL: http://ssrn.com/abstract=2437865
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    References listed on IDEAS

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    1. Kenneth K. Chow & Matthew S. Yiu & Charles Ka Yui Leung & Dickson C. Tam, 2008. "Does the DiPasquale-Wheaton Model Explain the House Price Dynamics in China Cities?," Working Papers 212008, Hong Kong Institute for Monetary Research.
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    Cited by:

    1. Joseph DeSalvo, 2017. "Teaching the DiPasquale-Wheaton Model," Working Papers 0117, University of South Florida, Department of Economics.

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    More about this item

    Keywords

    multifamily residential; macroeconomy; error correction models; cointegrated VAR; long run equilibrium modelling;
    All these keywords.

    JEL classification:

    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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