Price Co-movement Across Local Housing Markets in the United Kingdom

A significant body of research has examined regional house prices in the UK, testing for example for long run relationships (MacDonald and Taylor, 1993; Muellbauer and Murphy, 1994; Cook, 1995; Meen and Andrew, 1998), convergence (Drake, 1995; Cook, 2012; Abbott and De Vita, 2013), diffusion and volatility (Stevenson, 2004; Ferrari and Rae, 2011), as well as policy effects (Hilber and Vermeulen, 2016; Choudhry, 2020). In this research we focus on house price co-movement given the significant changes in house prices in the UK and examine the degree of synchronicity, spillovers, and volatility in price movements. Furthermore, we examine these co-movements at local authority (or municipality) level. The analysis draws upon a rich dataset provided by ONS HPSSAs, which offers detailed and granular information on house prices across small geographic areas. We apply dynamic conditional correlation generalised autoregressive conditional heteroscedasticity (DCC-GARCH) models across urban areas over contiguous local authorities. This method has been adopted by DeFusco et al (2013) for US metro area housing markets, by Zimmer (2014) for four US cities, as well as Miles (2016) for UK regions. Our disaggregated data set is quarterly covering the period 1995q4 to 2023q1 allowing analysis of years of, sometimes, rapid, house price appreciation as well as periods of price depreciation and whether these different economic circumstances change the relationship between house prices in and between different local authority areas.