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  • Print publication year: 2009
  • Online publication date: June 2014

5 - Multiple regression analysis


Economic issues include:

Durable consumption goods

Credit constraints and gearing

Econometric issues include:

OLS using EViews

Multiple regression analysis (MRA)

F tests of restrictions

Data issues include:

Hedonic pricing

Capturing seasonality using dummy variables

Dummy variable trap

The issue

Developments in housing markets have wide-ranging implications for the macro-economy. Increases in house prices will boost household wealth, thereby boosting consumption and fostering increases in aggregate demand. Increases in house prices may also affect consumer confidence and expectations, increasing general optimism within the economy. On the other hand, rigidities in housing markets have crucial implications for labour mobility, employment and unemployment. For example, housing market volatility will limit the ability of people to move in search of better jobs: Oswald (1997) observed that countries with fastest growth in home ownership in the 1980s and 1990s had the fastest growth in unemployment and attributed this to the labour immobility of owner occupiers in depressed housing markets, particularly those home owners who face negative equity (a situation which occurs when mortgage borrowings on a property exceed the value of the mortgaged property).

The affordability of housing will also affect householders' decisions to invest in housing: as house prices rise and incomes fall, people will choose other alternatives (e.g. renting, living with family) and cannot afford to enter the housing market either because their incomes are too low and/or because they cannot get easy access to mortgage credit.

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Further reading
Academic articles and working papers
Baddeley, M. C. (2005) ‘Housing bubbles, herds and frenzies: Evidence from British Housing Markets’, CCEPP Policy Brief No. 02–05, Cambridge Centre for Economic and Public Policy, Cambridge, UK. See
Helbling, T. F. (2005) ‘House price bubbles – a tale based on housing price booms and busts’, BIS Papers No. 21 – Real Estate Indicators and Financial Stability, Bank for International Settlements, 30–41.
Minsky, H. P. (1964) ‘Longer waves in financial relations: financial factors in the more severe depressions’, American Economic Review, vol. 54, no. 3, 324–35.
Muellbauer, J. and Murphy, A. (1997) ‘Booms and busts in the UK housing market’, Economic Journal, vol. 107, no. 445, 1701–27.
Oswald, A. J. (1997) ‘The missing piece of the unemployment puzzle’, Inaugural Lecture, University of Warwick.
Wood, R. (2005) ‘A comparison of UK residential house price indices’, BIS Papers No. 21 – Real Estate Indicators and Financial Stability, Bank for International Settlements, 212–27.
Policy reports and newspaper articles
Andre, C., Catte, P., Girouard, N. and Price, R. (2004) ‘Housing markets, wealth and the business cycle’, OECD Economics Department Working Papers, No. 394, Paris: OECD Publishing.
The Economist (2005) ‘The global housing boom: in come the waves’, 16 June 2005.
Financial Times (2004) ‘Every house price index tells its own story’, 30 June 2004.