An Intra-City Analysis of House Price Convergence and Spatial Dependence
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An Intra-City Analysis of House Price Convergence and Spatial Dependence Omar H. M. N. Bashar 1 Accepted: 28 September 2020/ # Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract This paper seeks to test the intra-city convergence of house prices using the comprehensive suburban house price and census data for a key Australian city. It applies the regression-based β-convergence test combined with spatial econometric models to examine the conditional convergence of house prices across 300+ suburbs in the Melbourne metropolitan area. This paper finds evidence of house price convergence when the econometric model controls for spatial effects and a few other suburban characteristics, such as population size, economic profile, education and employment profile, and crime rate. However, the convergence rate is found to be decelerated in the post-GFC periods. The estimation results suggest a faster convergence rate for units/ apartments than for freestanding houses. There is also evidence of spatial effects, implying that house price growth in Melbourne suburbs is spilling over into the neighboring suburbs. These findings are expected to shed new light on understanding the residential real estate market and price dynamics within a city in the context of a developed nation and help design relevant housing policies. Keywords House price . β-Convergence . Spatial analysis . Melbourne . Australia JEL Classification C21 . C31 . R12 . R30
Introduction This paper examines the conditional convergence of house prices across metropolitan suburbs in Melbourne, Australia, while taking into account the effects of spatial dependencies. Regional differences and convergence in house prices have been studied extensively in the context of the United Kingdom (UK) and the United States (US). However, there seems to be a dearth of rigorous studies on house price convergence * Omar H. M. N. Bashar [email protected]
1
Deakin Business School, Deakin University, 1 Gherighap St, Geelong, VIC 3220, Australia
O. H. M. N. Bashar
and cross-regional variations in house prices within cities in other countries, including Australia. The real estate sector comprises a significant share of Australian GDP, and housing asset is the largest component of household wealth in Australia.1 While Australia’s population is much less than the US and UK, it has a high concentration of population in a few major cities (Akimov et al. 2015). Unlike many developed nations, the growth in property prices in major Australian cities sustained, even in the aftermath of the Global Financial Crisis (GFC). Yates and Berry (2011) observe that the drivers and outcomes of the Australian housing market are unique, enabling the sector to withstand the fall-out from the GFC. As such, analysis of the house price convergence within a major city in Australia can provide new insights into similar international markets. Melbourne, the capital of Victoria, is the second-largest city in Australia (after Sydney). This city is known as the cultural capital o
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