Homeownership motivation, rationality, and housing prices: Evidence from gloom, boom, and bust‐and‐boom economies

• Author: Constantinos Alexiou,Aaron‐Samuel Chan,Sofoklis Vogiazas
• Published date: 01 January 2019
• DOI: http://doi.org/10.1002/ijfe.1672
• Date: 01 January 2019

RESEARCH ARTICLE

Homeownership motivation, rationality, and housing

prices: Evidence from gloom, boom, and bust‐and‐boom

economies

Constantinos Alexiou

1

| Aaron‐Samuel Chan

1

| Sofoklis Vogiazas

2

1

School of Management, Cranfield

University, Cranfield, UK

2

Operations Division, Βlack Sea Trade

and Development Bank, Thessaloniki,

Greece

Correspondence

Constantinos Alexiou, Cranfield

University, School of Management,

College road, Cranfield, Bedfordshire,

MK43 0AL, UK.

Email: constantinos.alexiou@cranfield.ac.

uk

JEL Classification: C22; G12; R31

Abstract

By focusing on three types of homebuyers, we address three questions: (a) Do

households drive housing prices? (b) Do households and landlords act ratio-

nally in their buying decisions? (c) Is the market conducive to promoting

homeownership or is it a speculators' territory? We use system Generalized

Method of Moments (GMM) estimations based on 1970–2016 data, for 34 econ-

omies clustered as gloom, boom, or bust‐and‐boom, and we provide novel evi-

dence that all three types of homebuyers contribute significantly to the

determination of housing prices. Households and landlords seem to act irratio-

nally as their decisions are not greatly affected by housing affordability or

shrinking yields.

KEYWORDS

homebuyers, housing prices, rational behaviour, speculation, system GMM

1|INTRODUCTION

The housing sector satisfies an essential need of house-

holds (Zhu, 2014). Conversely, inadequate housing con-

stitutes a threat to society that arises from the inherent

problems encountered even in advanced economies,

namely, poverty and homelessness. In this sense, when

the housing sector fails to satisfy the needs of households,

it can become a destabilizing factor, not only for social

cohesion and sustainable livelihoods but also for financial

stability and the real economy.

Housing varies greatly in terms of quality but can be

consumed either through ownership or rent. Alterna-

tively, houses can be viewed as an income‐generating

asset, as collateral for debt, or even as a commodity, the

value of which depends on various factors. Thus, housing

makes up a large component of wealth and investment,

but also of speculation.

Over time, housing prices have soared, reaching

unprecedented proportions. This increase in housing

costs of all types and tenures across many economies

has frequently been referred to as “a housing crisis,”as

housing costs of all types command a disproportionate

amount of peoples' income.

A close look at the IMF's Global House Price Index

(2017) suggests that the significant increase in housing

prices that has taken place since 2000 was only briefly

punctuated by the global financial crisis in 2007–2008.

Nearly 10 years after the crisis, housing prices have

already started to recover, and in certain countries exceed

their precrisis prices (Ahir & Loungani, 2016). An effec-

tive way to explain the continuous rise in housing prices

is to gain an insight into the underlying motivation for

residential property procurement.

To understand the drivers of the housing market and

hence housing prices, it is imperative to focus on three

different types of homeowners or buyers, namely, the

occupants or household buyers, the investor‐landlords

or landlords, and the investor‐speculators or speculators.

Traditionally, studies have focused on the consumer's

Received: 19 April 2018 Revised: 4 July 2018 Accepted: 9 September 2018

DOI: 10.1002/ijfe.1672

Int J Fin Econ. 2019;24:437–448. © 2018 John Wiley & Sons, Ltd.wileyonlinelibrary.com/journal/ijfe 437