Can sentiment surveys pre-empt real estate market activities?

We evaluate a number of real estate sentiment indices to ascertain current and forward-looking information content that may be useful for forecasting the demand and supply activities. Our focus lies on sector-specific surveys targeting the players from the supply-side of both residential and non-residential real estate markets. Analyzing the dynamic relationships within a Vector Auto-Regression (VAR) framework, we test the efficacy of these indices by comparing them with other coincident indicators in predicting real estate returns. Overall, our analysis suggests that sentiment indicators convey important information which should be embedded in the modeling exercise to predict real estate market returns. Generally, sentiment indices show better information content than broad economic indicators. The goodness of fit of our models is higher for the residential market than for the non-residential real estate sector. The impulse responses, in general, conform to our theoretical expectations. Variance decompositions and out-of-sample predictions generally show desired contribution and reasonable improvement respectively, thus upholding our hypothesis. Quite remarkably, consistent with the theory, the predictability swings when we look through different phases of the cycle. This perhaps suggests that, e.g. during recessions, market players’ expectations may be more accurate predictor of the future performances, conceivably indicating a ‘negative’ information processing bias and thus conforming to the precautionary motive of consumer behaviour.

Real estate markets and the macroeconomy: a dynamic coherence framework

This paper analyzes the dynamic interactions between real estate markets, in the US and the UK and their macroeconomic environments. We apply a new approach based on a dynamic coherence function (DCF) to study these interactions bringing together different real estate markets (the securitized market, the commercial market and the residential market). The results suggest that there is a common trend that drives the different real estate markets in the UK and the US, particularly in the long run, since they have a similar shape of the DCF. We also find that, in the US, wealth and housing expenditure channels are very conductive during real estate crises. However, in the UK, only the wealth effect is significant as a transmission channel during real estate market downturns. In addition, real estate markets in the UK and the US react differently to institutional shocks. This brings some insights on the conduct of monetary policy in order to avoid disturbances in real estate markets.

A multiple error-correction model of housing supply

This paper considers supply dynamics in the context of the Irish residential market. The analysis, in a multiple error-correction framework, reveals that although developers did respond to disequilibrium in supply, the rate of adjustment was relatively slow. In contrast, however, disequilibrium in demand did not impact upon supply, suggesting that inelastic supply conditions could explain the prolonged nature of the boom in the Irish market. Increased elasticity in the later stages of the boom may have been a contributory factor in the extent of the house price falls observed in recent years.

Intrinsic and rational speculative bubbles in the U.S. housing market 1960-2011

This paper examines the dynamics of the residential property market in the United States between 1960 and 2011. Given the cyclically and apparent overvaluation of the market over this period, we determine whether deviations of real estate prices from their fundamentals were caused by the existence of two genres of bubbles: intrinsic bubbles and rational speculative bubbles. We find evidence of an intrinsic bubble in the market pre-2000, implying that overreaction to changes in rents contributed to the overvaluation of real estate prices. However, using a regime-switching model, we find evidence of periodically collapsing rational bubbles in the post-2000 market

The impact of installer business models on the uptake of residential microgeneration in the UK: Evidence from a nation-wide survey

This paper arises from a doctoral thesis comparing the impact of alternative installer business models on the rate at which microgeneration is taken up in homes and installation standards across the UK. The paper presents the results of the first large-scale academic survey of businesses certified to install residential microgeneration. The aim is to systematically capture those characteristics which define the business model of each surveyed company, and relate these to the number, location and type of technologies that they install, and the quality of these installations. The methodology comprised a pilot web survey of 235 certified installer businesses, which was carried out in June last year and achieved a response rate of 30%. Following optimisation of the design, the main web survey was emailed to over 2000 businesses between October and December 2011, with 317 valid responses received. The survey is being complemented during summer 2012 by semi-structured interviews with a representative sample of installers who completed the main survey. The survey results are currently being analysed. The early results indicate an emerging and volatile market where solar PV, solar hot water and air source heat pumps are the dominant technologies. Three quarters of respondents are founders of their installer business, while only 22 businesses are owned by another company. Over half of the 317 businesses have five employees or less, while 166 businesses are no more than four years old. In addition, half of the businesses stated that 100% of their employees work on microgeneration-related activities. 85% of the surveyed companies have only one business location in the UK. A third of the businesses are based either in the South West or South East regions of England. This paper outlines the interim results of the survey combined with the outcomes from additional interviews with installers to date. The research identifies some of the business models underpinning microgeneration installers and some of the ways in which installer business models impact on the rate and standards of microgeneration uptake. A tentative conclusion is that installer business models are profoundly dependent on the levels and timing of support from the UK Feed-in Tariffs and Renewable Heat Incentive.

The impact of buy to let residential investment on local housing markets: evidence from Glasgow, Scotland

The advent of the 'buy to let' (BTL) phenomenon in the UK. apart from producing a new wave of individualized rental market investment, has been widely judged to be a speculative and destabilizing force in the housing market. This paper provides a detailed empirical investigation of new residential investment in one city (Glasgow) where BTL has made a relatively large impact. In seeking to overcome data problems, the study employed qualitative (expert interviews and a landlord survey) and quantitative methods (census, the Register of Sasines, standardized house price information and modelling thereof) in order to assess the nature and scale of BTL, the motivations of investors and its impact on the private housing market. The evidence suggests that white Glasgow is in many re.spects different to rental markets elsewhere in the UK and although the investment has thus far largely occurred in a benign environment, the context for future investment, on balance, looks sustainable (i.e.favourable changes to pension planning law and the maturing market for BTL}. Long-term market impact is an empirical question that depends on the specific interactions of market niches or segments (i.e. the first-time buyer market for apartments} with potential buy to let investment. Our conclusion, to borrow a Scottish legal term, is that BTL induced volatility is 'not proven'.

Is Energy Efficiency Priced in the Housing Market? Some Evidence from the United Kingdom.

This paper investigates whether energy performance ratings, as measured by mandatory Energy Performance Certificates (EPCs), are reflected in the sale prices of residential properties. This is the first large-scale empirical study of this topic in the UK involving approximately 400,000 dwellings in the period from 1995 to 2011. Applying hedonic regression and an augmented repeat sales regression, we find a positive relationship between the energy efficiency rating of a dwelling and the transaction price per square metre. The price effects of superior energy performance tend to be higher for terraced dwellings and flats compared to detached and semi-detached dwellings. The evidence is less clear-cut for house price growth rates but remains supportive of an overall positive association. Overall, the results of this study appear to support the hypothesis that energy efficiency levels are reflected in UK house prices, at least in recent years.

A case study to investigate the life cycle carbon emissions and carbon storage capacity of a cross laminated timber, multi-storey residential building

Forests are a store of carbon and an eco-system that continually removes carbon dioxide from the atmosphere. If they are sustainably managed, the carbon store can be maintained at a constant level, while the trees removed and converted to timber products can form an additional long term carbon store. The total carbon store in the forest and associated ‘wood chain’ therefore increases over time, given appropriate management. This increasing carbon store can be further enhanced with afforestation. The UK’s forest area has increased continually since the early 1900s, although the rate of increase has declined since its peak in the late 1980s, and it is a similar picture in the rest of Europe. The increased sustainable use of timber in construction is a key market incentive for afforestation, which can make a significant contribution to reducing carbon emissions. The case study presented in this paper demonstrates the carbon benefits of a Cross Laminated Timber (CLT) solution for a multi-storey residential building in comparison with a more conventional reinforced concrete solution. The embodied carbon of the building up to completion of construction is considered, together with the stored carbon during the life of the building and the impact of different end of life scenarios. The results of the study show that the total stored carbon in the CLT structural frame is 1215tCO2 (30tCO2 per housing unit). The choice of treatment at end of life has a significant effect on the whole life embodied carbon of the CLT frame, which ranges from -1017 tCO2e for re-use to +153tCO2e for incinerate without energy recovery. All end of life scenarios considered result in lower total CO2e emissions for the CLT frame building compared with the reinforced concrete frame solution.

Shovel ready? An empirical investigation of stalled residential sites.

Drawing upon a national database of unimplemented planning permissions and 18 in-depth case studies, this paper provides both a quantitative and qualitative analysis of the phenomenon of stalled sites in England. The practical and conceptual difficulties of classifying sites as stalled are critically reviewed. From the literature, it is suggested that planning permission may not be implemented due to lack of financial viability, strategic behaviour by landowners and house-builders and other problems associated with the development process. Consistent with poor viability, the analysis of the national database indicates that a substantial proportion of the stalled sites is high density apartment development and/or is located in low house value areas. The case studies suggest that a combination of interlinked issues may need to be resolved before a planning permission can be implemented. These include; the sale of the land to house-builders, re-negotiation of the planning permission and, most importantly, improvement in housing market conditions.

Residential investment and sustainable communities

This research examines the scope for more private rented housing as part of securing housing choice and affordability. A comprehensive review covers the current UK planning, housing and investment framework. It examines UK valuation practice and draws lessons from the Netherlands and Canada. UK case studies illustrate how private companies and social organisations are challenging commonly perceived barriers to mixed-use, mixed-tenure and rented housing through imaginative developments and investments. Additionally, the case studies incorporate financial appraisals of actual schemes and illustrate the reasons for different approaches by private and social organisations to assessing financial feasibility, based on their individual objectives. The report provides a practical resource for property professionals, investors and developers as well as an aid to policy makers in understanding property and investment market responses. The research was funded through the Pat Allsop Education Trust.

Residential property loans and bank performance during property price booms: evidence from Europe

Understanding the performance of banks is of the utmost importance due to the impact the sector may have on economic growth and financial stability. Residential mortgage loans constitute a large proportion of the portfolio of many banks and are one of the key assets in the determination of their performance. Using a dynamic panel model, we analyse the impact of residential mortgage loans on bank profitability and risk, based on a sample of 555 banks in the European Union (EU-15), over the period from 1995 to 2008. We find that an increase in residential mortgage loans seems to improve bank’s performance in terms of both profitability and credit risk in good market, pre-financial crisis, conditions. These findings may aid in explaining why banks rush to lend to property during booms because of the positive effect it has on performance. The results also show that credit risk and profitability are lower during the upturn in the residential property cycle.

The housing market channel of monetary policy transmission in the Euro area

Purpose – The purpose of this paper is to explore the role of the housing market in the monetary policy transmission to consumption among euro area member states. It has been argued that the housing market in one country is then important when its mortgage market is well developed. The countries in the euro area follow unitary monetary policy, however, their housing and mortgage markets show some heterogeneity, which may lead to different policy effects on aggregate consumption through the housing market. Design/methodology/approach – The housing market can act as a channel of monetary policy shocks to household consumption through changes in house prices and residential investment – the housing market channel. We estimate vector autoregressive models for each country and conduct a counterfactual analysis in order to disentangle the housing market channel and assess its importance across the euro area member states. Findings – We find little evidence for heterogeneity of the monetary policy transmission through house prices across the euro area countries. Housing market variations in the euro area seem to be better captured by changes in residential investment rather than by changes in house prices. As a result we do not find significantly large house price channels. For some of the countries however, we observe a monetary policy channel through residential investment. The existence of a housing channel may depend on institutional features of both the labour market or with institutional factors capturing the degree of household debt as is the LTV ratio. Originality/value – The study contributes to the existing literature by assessing whether a unitary monetary policy has a different impact on consumption across the euro area countries through their housing and mortgage markets. We disentangle monetary-policy-induced effects on consumption associated with variations on the housing markets due to either house price variations or residential investment changes. We show that the housing market can play a role in the monetary transmission mechanism even in countries with less developed mortgage markets through variations in residential investment.