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An Econometric Demand-Supply Model for Swedish Private Housing

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  • Bharat Barot
  • Alfred Kanis

Abstract

A housing market model for Sweden has been estimated on semiannual data for 1970-97 by separately modelling the demand and the supply sides, specified in error correction form. On the demand side in the short run house prices adjust to the changes in the real after tax long interest rate, financial wealth, the employment rate, rents and, finally, population. There is an underlying long run relationship between real house prices and the following ratios: debt to income, debt to financial wealth, private housing stock to income, the stock of rental housing (flats) to the private housing stock, the real after tax real long interest rate. The supply side, based on a Tobin=s q-index, the short interest rate and stock market returns, generates the investment flow which determines the evolution in stock. The results indicate that even in a turbulent period, Swedish house prices and housing investment are tracked quite well with this specification. The importance of the simulations and their usefulness to Swedish policy makers is discussed. According to our model, many factors were instrumental in producing the house price boom of the late-1980s. Initial debt levels were low as were real house prices, giving scope for rises in both, and these became more important as a result of financial liberalization, though partly offset by higher real interest rates. We also discuss the controversy over the causes of the 1991-1993 recession in the context of the 1991 Tax Reform. Tests of model adequacy indicate that the housing price and Tobin q housing investment models are stable and robust and satisfy intuitive theoretical prerequisites.

Suggested Citation

  • Bharat Barot & Alfred Kanis, 2001. "An Econometric Demand-Supply Model for Swedish Private Housing," ERES eres2001_112, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2001_112
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    References listed on IDEAS

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    Cited by:

    1. Bharat Barot & Zan Yang, 2004. "House Prices and Housing Investment in Sweden and the UK. Econometric analysis for the period 1970-1998," Macroeconomics 0409022, University Library of Munich, Germany.
    2. Barot, Bharat, 2002. "Growth and Business Cycles for the Swedish Economy 1963-1999," Working Papers 79, National Institute of Economic Research.
    3. Barot, Bharat & Yang, Zan, 2002. "House Prices and Housing Investment in Sweden and the United Kingdom: Econometric Analysis for the Period 1970-1998," Working Papers 80, National Institute of Economic Research.
    4. Gattini, Luca & Hiebert, Paul, 2010. "Forecasting and assessing Euro area house prices through the lens of key fundamentals," Working Paper Series 1249, European Central Bank.
    5. Yang, Zan & Wang, S.T., 2012. "Permanent and transitory shocks in owner-occupied housing: A common trend model of price dynamics," Journal of Housing Economics, Elsevier, vol. 21(4), pages 336-346.
    6. Ms. Rima A Turk, 2015. "Housing Price and Household Debt Interactions in Sweden," IMF Working Papers 2015/276, International Monetary Fund.

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    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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