Relationship between House Prices and Inflation in South Africa: An ARDL Approach

No 201130, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper investigates the long-run impact of inflation on homeowner equity in South Africa by analysing the relationship between house prices and the prices of non-housing goods and services. Quarterly data series are collected for the luxury, large middle-segment, medium middle-segment, small middle-segment and the entire middle segment of house prices, as well as, the consumer price index excluding housing costs for the period 1970:Q1–2011:Q1. Based on autoregressive distributed lag (ARDL) models, the empirical results indicate long-run cointegration between the house prices of all the segments and the consumer price index excluding housing costs. Moreover, the long-run elasticity of house prices with respect to prices of non-housing goods and services, i.e., the Fisher coefficient is greater than one for the luxury segment, virtually equal to one for the small middle-segment, and less than one for the large and medium middle-segments, as well as the affordable segments. More importantly though, the estimated Fisher coefficients are not statistically different from unity – a result consistent with the proposed theoretical framework relating housing prices and consumer prices excluding housing expenditure. In general, we infer that house prices in South Africa provide a stable, but quantitatively minor, inflation hedge in the long-run.

Keywords: House prices; Inflation; South Africa (search for similar items in EconPapers)
JEL-codes: C32 E31 R31 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2011-11
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201130

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