Metropolitan House Prices in South Africa: Do They Converge?

Abstract

The question this paper investigates is whether or not different metropolitan areas each constitute a separate housing market or whether or not there is a single South African housing market. Theory on the Law of One Price suggests that if products or geographic areas belong in the same market, their absolute prices must converge, so that their relative prices are stationary. By using cross-sectional time series data of five metropolitan areas, the paper tests for the Law of One Price by applying the Im, Pesaran and Shin panel unit root test. The paper finds strong evidence of convergence in large middle-segment house prices and weaker support for convergence in medium middle-segment house prices. In addition, the paper finds no evidence for convergence in small middle-segment house prices. This suggests the existence of a national market for large and possibly middle-segment houses in metropolitan areas, but separate metropolitan markets for small middle-segment houses. In addition, the paper estimates the speed of convergence and finds that large middle-segment house prices converge within two to seven quarters, while the speed of convergence for medium middle-segment house prices in three of the five areas is five to eight quarters. Copyright (c) 2008 The Authors. Journal compilation (c) 2008 Economic Society of South Africa.

The effect of monetary policy on real house price growth in South Africa: A factor-augmented vector autoregression (FAVAR) approach

“…2 Note, the motivation to use the three major segments of the housing market, with the middle-segment subdivided further into three categories based on sizes, and not just the aggregate housing market, emanates from the fact that the market for different house-types are found to behave differently (Burger and van Rensburg, 2008). Clearly then, the impact of monetary policy on the different segments of the South African housing market is less likely to be homogenous.…”

Two countries, sixteen cities, five thousand kilometres: How many housing markets?

“…The (long run) model comprises four equations as follows: 6 For other UK studies, see: Cook and Thomas (2003), Cook (2003Cook ( , 2005aCook ( , 2005b, Holmes (2007), Meen (1999). For studies of other countries, see: Burger and Van Rensburg (2008), Gallet (2004), Gros (2007), Fadiga andWang (2009), Chien (2010). 7 Grimes et al (2010) provide an example of rejection of cointegration for two obviously closely related real house price series.…”

Are house prices in South Africa really nonstationary? Evidence from SPSM-based panel KSS test with a Fourier function

“…The decision to use South Africa as a case study has several motivations: first, we are familiar with the housing market and availability of data for over long spans and across regions, coupled with the general lack of any study on unit root properties of house prices dealing with an emerging economy; second, to the best of our knowledge, there exist no studies on South Africa that deal with unit root properties of house prices at the provincial level. Primarily, while analyzing univariate characteristics of house prices, researchers in South Africa (Burger and van Rensburg, 2008;Das et al, 2010;Balcilar et al, 2013) have concentrated on the convergence of and the ripple effect of house prices across major metropolitan areas of South Africa using a wide range of unit root testing procedures, with the appropriate metric being relative house prices rather than the absolute nominal house price. Other studies (Simo-Kengne et al, 2012 have looked at unit root properties of real house prices across provinces, using standard panel unit root tests, and have analyzed the spillover effect of the housing sector onto the real economy.…”