GDP, HOUSING PRICES AND CPF POLICIES

Abstract

Housing represents significantly in the national economy and it is the largest component of household wealth. Fluctuations in house prices have a direct impact on the level of macroeconomic activity as it affects private consumption and investment. This dissertation attempts to explain the impact of housing prices on GDP growth. It investigates the casual relationship between HDB prices and GDP growth as well as Private Property Prices and GDP growth.

The results show that HDB resale price growth and private residential property price growth granger cause GDP growth when lagged order of 1 and 4 are used respectively. From the results, private residential property price growth has a greater explanatory power than HDB resale price growth.

Subsequently, regression models are formed to assess the impact of economic factors as well as CPF policies on housing price growth. The empirical study covers a sample period of 17 years, between 1Q 1990 and 3Q 2007. The results indicate that apart from macroeconomic factors such as interest rate and earnings, CPF policies also play a significant role in explaining for housing prices in both the public and private sector. Dummy variables which represent various CPF policies show that CPF housing grants and liberalization policies have an impact on housing price. The 1996 policy, in particular, is the most significant policy that can explain HDB resale price growth.