Fundamental drivers of real estate : which factors influence house prices in Europe, North America and Asia-Pacific region
Creators: name: Mahrer, Nora
Publisher: name: ZHAW Zürcher Hochschule für Angewandte Wissenschaften
Year: 2020
Subjects: 332: Finanzwirtschaft

description: House price developments represent a common field of study fostered by the high interest of financial institutions, scientific research analysts and policymakers since the substantial rise in residential property prices in recent decades. Therefore, there is a need to analyze fundamental factors that affect housing prices in advanced economies, assuming that not only one indicator is responsible for significant long-term developments. 

This bachelor thesis investigated influential factors that are predominantly associated with property price dynamic movements on a long-term scale. The first section of this thesis concentrated on influential variables based on scientific publications. Further, a conceptual radial cluster model out of endogenous reasons (within a property sector) and exogenous reasons (macroeconomic fluctuations) presented an overview and was delivered through the literature findings. 

In the second part of this thesis, an empirical analysis focusing on ten advanced economies from 1980 – 2017 investigated a small set of explanatory determinants. The purpose of this quantitative analysis was to evaluate through longitudinal data to what extend the chosen set of factors influences house price indices, to which degree correlations between variables exist and what the cross-country discrepancies are. A panel analysis was reasonably applied to monitor housing prices in specific countries over the defined time period. Furthermore, a correlation matrix was used to assess the strength of linear relationships in-between the five explanatory variables to residential property price indices in different environmental settings, thus, to be able to explore cross-national discrepancies. The five explanatory variables are annual long-term interest rate percentage, annual growth percentage of adjusted net national income per capita, GDP per capita, annual growth percentage of population and the unemployment rate. 

Through the application of both methodologies, the literature review and the empirical analysis, a clearer understanding of the forces driving the real estate market has been established. The outcome of the literature research indicates that numerous factors are influencing the real estate sector over time. Fundamental drivers were found to be mostly of endogenous reasons due to the heterogenic characteristics of the real estate sector. Results of the second part of this thesis, the carried-out empirical analysis, reveal with 380 observations that there are statistically significant correlations between residential property price indices and the selected independent variables. 

Overall, the study indicates that GDP per capita, interest rates and unemployment rates are strongly associated with house price developments among various environmental settings in the long run. Furthermore, the results showed significant demographic differences in housing price developments as well as in the interplay between explanatory variables. Hence, it is crucial to closely monitor both endogenous and exogenous long-term driving factors carefully when studying property price dynamics.