Price Discovery - Resi Land & House Mkts
Residential Land & Housing Markets
This research paper examines whether high land prices in urban areas caused high property prices or whether high property prices leads to high land prices … And based on the quarterly price indexes of private housing and residential land in Singapore between 1990:1 and 2005:4, the empirical results suggest a few interesting details
(1) House and land prices are cointegrated, meaning that are related to each other in the long-term.
(2) The rate of convergence to long-run equilibrium relation is more rapid in the land market than in the housing market.
(3) There is a Granger causality* effect moving from the housing market to the land market.
*Granger causality - a technique for determining whether one time series is useful in forecasting another.
(4) There is no reverse causality, i.e. land prices do not Granger cause house prices.
In summary, whilst it is not wrong to say that high property prices cause residential land prices to rise, it is incorrect to attribute rising house prices to high land prices.
The general implication of the current research is that price movements in the land market are not independent of what happened in the private housing market. Although land prices do not granger cause house prices, this does not mean that land policies are irrelevant. For example …
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Some data screenshots below (click to enlarge)
