Template-Type: ReDIF-Paper 1.0
Author-Name: Mark J. Holmes
Author-X-Name-First: Mark
Author-X-Name-Last: Holmes
Author-Email: holmesmj@waikato.ac.nz
Author-Workplace-Name: University of Waikato
Author-Name: Arthur Grimes
Author-X-Name-First: Arthur
Author-X-Name-Last: Grimes
Author-Email: arthur.grimes@motu.org.nz
Author-Workplace-Name: Motu Economic and Public Policy Research 
Title: Is there long-run convergence of regional house prices in the UK?
Abstract: This paper investigates the long-run convergence of regional house prices in the UK. Using a variety of econometric methods, existing studies have failed to reach a consensus on whether or not regional house prices are cointegrated and exhibit long-run constancy relative to each other. We propose the application of a new test that combines principal components analysis with unit root testing to throw new light on the regional convergence debate. Using mix-adjusted quarterly house price data for 1973-2005, we find that existing unit root and cointegration methodologies indicate the presence of multiple stochastic trends with, at best, very weak evidence of long-run convergence. However, testing for the stationarity of the largest principal component based on regional house price differentials suggests that all UK regional house prices are driven by a single common stochastic trend and can be regarded as exhibiting strong convergence in the long-run. Further analysis suggests there is a high degree of persistence in regional house price differentials.
Length: 22 pages
Creation-Date:  2005-08
File-URL: https://motu-www.motu.org.nz/wpapers/05_11.pdf
Number: 05_11
Classification-JEL: C5; R0
Keywords: House prices, convergence, unit roots, cointegration, principal components
Handle: RePEc:mtu:wpaper:05_11