House prices drivers in Greece and Portugal: a cointegration analysis

Purpose - The purpose of the article is to contribute to the existing growth literature by exploring the complex dynamics between house prices and macroeconomic factors such as gross domestic product (GDP) per capita, interest rates, employment and inflation in two countries sharing common geopolitical and socioeconomic characteristics, namely Greece and Portugal. Design/methodology/approach - The autoregressive distributed lag (ARDL) cointegration methodology is applied, as proposed by Pesaran and Shin (1995) and Pesaranet al. (2001) in the presence of structural breaks. The bounds-testing ARDL model is used due to its numerous advantages, while the unit root test with breaks was performed in order to capture events capable of causing regime changes. Findings - The analysis reveals evidence of a strong association between housing prices and inflation in both the long run and the short run. With respect to the other housing price determinants, evidence is mixed according to the country selected. Originality/value - This work is inspired by the determinant role of housing prices in the economic system, household wealth and the standard of living in the last decades. Using various theoretical and methodological approaches, these studies have focused on the importance attached to several factors affecting house prices, such as GDP per capita, inflation, employment, interest rates, etc.