Geography and Regional Planning

Geography and Regional Planning

Evaluating housing price fluctuations in urban areas (modeling approach)

Author
Hojjatollah Mirzaei Teshnizi
Assistant Professor of Economics, Department of Economic Development and Planning, Allameh Tabatabaei University, Tehran, Iran
10.22034/jgeoq.2025.292555.3164
Abstract
The residential housing market, owing to its multifaceted significance across various economic and technical domains, has been a central focus of scholarly inquiry. Over the past two decades, issues pertaining to housing price volatility (or "shocks"), particularly within metropolitan areas, have garnered substantial attention from both the general public and national policymakers. The inherent characteristics of this market, which differentiate its critical role in broader economic and socio-political activities, further emphasize the salience of this subject. Consequently, this study rigorously examines the phenomenon of housing price fluctuations in urban regions across the two-decade span from 1380 to 1400 (approximately 2001–2021), employing Vector Autoregression (VAR) and the Vector Error Correction Model (VECM) frameworks. The econometric model’s findings yield the following key conclusions: The supply of newly constructed residential units in urban areas exerts a negative impact on housing prices, indicating that an augmented supply level leads to price abatement. Regarding the expected rate of return on housing investment (ROI): When housing prices are bid up by other determinants, consequently elevating the expected ROI, economic agents are incentivized to enter the market, thereby increasing the supply. This initial surge in supply precipitates a short-run price reduction, which in turn depresses profit margins, triggering an exit of capital. Ultimately, this mechanism culminates in a positive long-run effect of the expected rate of return on urban housing prices. The scost of ownerhip is found to have a positive correlation, implying that an escalation in ownership costs is associated with housing price appreciation. Among the exogenous variables introduced in the model, the bank interest rate demonstrated a negative relationship. This suggests that an increase in the banking sector’s interest rate leads to a decline in housing prices, effectively contributing to a subdued housing market activity. This outcome is attributed to the reduced necessity of acquiring tangible assets like housing to hedge against liquidity depreciation, as higher bank returns offer an alternative store of value.  Conversely, the gold coin price exhibited a positive co-movement with housing prices. This indicates that gold, serving as an alternative capital asset or store of value, changes direction in tandem with housing price shifts
Keywords
Metropolitan Areas
Price Volatility
Residential Housing
VECM
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