DETERMINANTS OF HOUSE PRICES AND NEW CONSTRUCTION ACTIVITY: AN EMPIRICAL INVESTIGATION OF THE NAMIBIAN HOUSING MARKET
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Date
2017
Journal Title
Journal ISSN
Volume Title
Publisher
J o u r n a l o f D e v e l o p i n g A r e a s
Abstract
The demand for and supply of housing are heterogeneous and differ across countries, provinces and
cities. In the Namibian context, the housing market has experienced a substantial increase in house
prices. Such an unexpected growth rate in house prices suggests that the Namibian housing market
may not be sustainable in the long term. This means that there is a high probability of a housing price
bubble in Namibia if the house prices continue to increase. The aim of this study was to conduct an
econometric analysis of endogenous and exogenous determinants of house prices and new
construction activity in Namibia. This study also attempted to establish whether there is evidence of
overvaluation of house prices in the Namibian housing market and this is important in identifying the
possibility of a housing price bubble in Namibia. In addition, the study is relevant during the current
period where Namibia is faced with a continuous increase in house prices. A restricted VAR model
with a Johansen cointegration approach was used to analyse monthly data from January 2000 to
December 2014. The selection of the data set was aimed at providing representatives for various
housing demand drivers and housing supply determinants. For modelling on the supply side, new
construction investment as a percentage of GDP was employed. The other variables incorporated as
exogenous variables include the economic growth rate, the consumer price index, nominal wages as
a percentage of GDP, the short-term interest rate, mortgage loans as a share of GDP and population
in the 15-64 cohort as a percentage of GDP. Results show that the house price index in Namibia has
proved more sensitive to changes in population, mortgage loans and inflation; whereas the
construction activities were found to be more sensitive to the house price index and inflation. Granger
causality results show that there is a bidirectional causality between the house price index and new
construction activity in Namibia. The study therefore found evidence of overvaluation of house prices
in the Namibian housing market, which may lead to a house price bubble in the Namibian economy.
Namibian policymakers, through the Bank of Namibia, should come up with policies which ensure
that the majority of mortgages given by the banks are for constructing new houses instead of
financing the purchase of existing houses.
Description
Keywords
house prices, property market, cointegration, VAR model, Namibia
Citation
Sunde, T., & Muzindutsi, P. (2017). Determinants of house prices and new construction activity: An empirical investigation of the namibian housing market. Journal of Developing Areas, 51(3). 389 - 407. Retrieved from: https://muse.jhu.edu/article/662360.