Does Tourism Contribute to Real Estate Boom? A DSGE Modeling in Small Open Economy

Abstract

<jats:p> This article aims to investigate the relationship between inbound tourism and housing market along with the recent boom in Icelandic real estate sector, in which both house and rental prices have been rising dramatically. To this end, we construct a small open economy dynamic stochastic general equilibrium model enclosing a tourism sector and a housing market with owner-occupied and rental sections. The simulation results unveil a transmission channel that indicates the higher inbound tourism demand raises both house prices and rental prices. Variance decomposition and historical decomposition show that both inbound tourism demand shock and manufacturing technology shock are the key driving forces of the fluctuations of Icelandic house prices, consumption, and investment, whereas housing preference shock plays the most important role in determining the volatility of rental prices. The policy implications indicate that any shocks to tourism could easily spillover to housing market dynamics and aggregate fluctuations. </jats:p>

Does tourism affect house prices in Turkey? Evidence from smooth structural break tests

“…This finding proposes that higher tourism could further heighten house prices. Results are compatible with the results of Biagi et al (2015), Paramati and Roca (2019), Zhang and Yang (2021) and Churchill et al (2021). Further, the results indicate an increase in industrial production leads to higher house prices while an increase in mortgage rate decreases house prices, but the mortgage rate is statistically insignificant.…”

“…In explaining the transmission mechanism, it is considered to occur that higher tourism receipts raise the consumption of tourism goods and complimentary accommodation, which escalate the housing rentals. As a result, higher rents cause entrepreneurs to buy more real estate properties and house prices ultimately rise (Zhang and Yang, 2021). Considering these arguments, policymakers need to establish appropriate policies that consider both the appreciation of house prices concerning macroeconomic stability and the impact of tourism activities on business cycles.…”

“…Apart from the above studies, the small island countries and regionally based cases in tourism-housing nexus have also been presented in the literature in different parts of the world. A few studies analyze the relationship between tourism and house prices by considering island countries such as Cyprus, Malta and Iceland (Alola et al , 2019; Alola and Alola, 2019; Zhang and Yang, 2021). Furthermore, the causal relationship between tourism activities and house prices has also been investigated in the various regional area in China (Wu, 2019; Wu et al , 2021; Cheng and Lin, 2020).…”

“…Studies show that tourism and tourism-related activities increase the demand for housing in tourist areas. This housing demand determines the house prices and the structure and/or architecture of houses (Biagi et al , 2012; Zhang and Yang, 2021). Furthermore, rises in tourism activities can also lead to pressure on infrastructure, increased congestion and pollution and increased waiting times for services, all of which are included in house prices (Biagi et al , 2016).…”

A review of early COVID-19 research in tourism: Launching the Annals of Tourism Research's Curated Collection on coronavirus and tourism

“…Further refinements included limiting the sample to English publications and assessing the role of COVID-19 in the research presented. Many papers, such as that of Zhang and Yang (2020), only briefly discussed tourism implications in the (post-) COVID-19 era without integrating this context in their research framework. Such articles were removed from the sample.…”