Regional Spillovers in the Hungarian Housing Market: Evidence from a Spatio-Temporal Model

Summary:

Regional heterogeneity and spillovers are important for both house prices and construction. However, only few papers deal simultaneously with these issues. Existing studies that jointly analyse prices and quantities on the housing market typically use aggregate data; e.g. Meen (2000), Gattini and Hiebert (2010). Papers explicitly modelling spatial linkages generally focus on the behaviour of prices and treat housing stock as exogenous; e.g. Beenstock and Felsenstein (2010). A joint analysis of regional house prices and volumes appears in the spatial VAR model of Beenstock and Felsenstein (2007) but contrary to this paper, they ignore the possibility of cointegration, which can make their estimates of long-run effects less reliable. Housing starts are also present in the spatial VAR of Brady (2014) but his impulse response analysis only concerns house prices. The present paper goes beyond these studies by quantifying the effect of region-specific house price shocks on aggregate construction activity.

This paper also adds to the literature on the Hungarian housing market. Earlier studies focused on aggregate developments, and were preoccupied with estimating key elasticities of house prices; see e.g. Kiss and Vadas (2007), Horváth (2008), Berki and Szendrei (2017).  However, these regional studies did not consider spillovers. Therefore, this paper also contains novel results for Hungary, especially concerning the elasticity of housing supply and regional linkages.

Finally, the paper complements existing spatial econometric analyses by considering an economic rationale for spatial linkages. Researchers have so far typically assumed simple spatial patterns such as the physical neighbourhood of territorial units. However, this approach has been criticised for lacking economic underpinning; see Corrado and Fingleton (2012). This paper applies a novel approach to construct the spatial matrix, by making use of the matrix of interregional migration flows, published by the Hungarian Central Statistical Office.

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