Prescience evidence of the housing market and production sector performance nexus

Purpose - Observation of misalignment of the house prices with fundamentals in Malta was recently investigated (Vakili-Zad and Hoekstra, 2011; Micallef, 2018). As such, this study aims to investigate nexus evidence of the housing market and production sector performance in Malta by using quarterly data spanning from 2005Q1 to 2016Q4. Design/methodology/approach - Industrial expansion and development indicator-producer price index (ppi) and unemployment (uem) are used along with volatility index (vix) and fertility rate (frate) as control variables in a multivariate autoregressive distributed lag approach. Findings - Precisely, the investigation reveals that any disequilibrium in the long-run equilibrium among these variables is subsequently corrected by the movement in the housing market vis-à-vis real residential property price. As the system is observed to adjust with a speed of 39.7 per cent in a situation of economic disequilibrium, the long-run impacts on the housing market are positive for ppi and vix but negative for frate and eum. The observed direction of the impacts in the short-run are the same as in the long-run for all variables. A reported sensitivity test indicates a very minimal differential impact for each variable in the long-run but with a significantly different adjustment parameter of 81.9 per cent. Also, the estimated system posits a very stable model that is void of serial correlation and heteroskedasticity. Research limitations/implications - In view of the vibrant nature of the real estate and the housing sector of the country, consideration of the effective policy instruments provided by this study is strongly encouraged. On a wider note, these practicable tools could further be recommended to other regional countries. Originality/value - The research presents a novel perspective of the real estate and housing sector of Malta, specifically in the light of economic diversification. The country’s housing sector is studied in relation with the performance of other sectors for the first time.