Determinants of Housing Prices in an Oil Based Economy

Abstract

This paper is trying to analyze the determinants of housing prices in an oil-based economy, where the price of oil plays a major role in such economies. It is also common to find that government spending represents the most important component of aggregate spending and that governments usually play a central role in the provision of public services to citizens at substantial subsidies, housing is on top of them. The paper is trying to identify the role played by oil price in the housing market in Kuwait. The model is composed of four major determinants of house prices including the price of oil, government expenditures, inflation rate and interest rate. Results confirm the role played by the four factors in determining the price of houses. Variance decomposition indicates that up to 10 quarters, 94.3% of the forecast error variance in housing prices is explained by house price itself, whereas, only 2.3%, 1.6%, 1.5% and 0.8% are explained by Interest rates, inflation rates, government expenditures, and price of oil respectively. The oil price does not seem to play an important impact on price changes in Kuwait. One important recommendation is for the government to relax its monopoly on land and invite the private sector to come up with housing solutions to increase the supply of houses in the private housing market and reduce the upward pressures on house prices.

An Overview of Macro-Economic Determinants of Real Estate Price in Nigeria

“…Real estate are used by individuals during inflation. The inflation rate has direct influence on real estate price (Almutairi, 2016). As earlier anticipated, high inflation rates raises the real estate price, the higher rate of inflation, the price of real estate will be higher, of course the response of real estate prices to inflation rates may depend on numerous factors that include real estate supply, intensity of demand and market condition (Almutairi, 2016).…”

“…Therefore, if the interest rate increases, the cost of real estate investment will also increases and some real estate investors will reduce their investment scale, which will decrease the supply of real estate and increase the price (Zhang et al 2016). Moreover, higher rate of interest has some consequences on the prices, where interest rate increase will have negative impact on the demand for housing, as the housing demand will be lower and it affects the direction of house prices (Almutairi, 2016…”

“…The inflation rate has direct influence on real estate price (Almutairi, 2016). As earlier anticipated, high inflation rates raises the real estate price, the higher rate of inflation, the price of real estate will be higher, of course the response of real estate prices to inflation rates may depend on numerous factors that include real estate supply, intensity of demand and market condition (Almutairi, 2016). Particularly, when taking the trend into account, it was discovered that inflation impact on housing returns is negative and the impact of housing returns on inflation is positive (30).…”

“…Where oil price increases, private savings will move towards restate investment and increases real estate demand and its prices. (Almutairi, 2016). According to Nazlioglu et al (2015) the demand and supply of oil price has negative effect on economic activity in developing and developed nations.…”

Determinants of housing prices in Baku: empirical analyses

“…Findings of the research indicate that among all factors, only land supply has a significant effect on the real estate prices. Almutairi and El-Sakka (2016) analyzed housing affordability as well as main price determinants of real estate in Kuwait. Authors concluded that government’s incompetence in housing provision is the reason of an acute housing affordability problem which in turn ignites property prices.…”