TO INVESTIGATE WHETHER OR NOT POLICIES AND UNDERLYING FACTORS AFFECT HOUSING PRICES

Abstract

This study investigates the relationship between housing policy and price changes in the private residential market. Motivations behind governmental policies often result from a need to regulate this market to ensure a stable and sustainable market for both home seekers and developers. Demand and supply targeted policies are deployed to adjust market prices to maintain the private residential market in line with sound economic fundamentals. The time period of investigation spans from 1993Q1 to 2010Q3. Variables of interest are treated and tested to ensure that they are stationary and do not hold unwanted correlation relationships. These include key economic and real estate variables. The Augmented Dickey Fuller tests reveal the non-stationarity of certain variables of interest. A first-differenced vector autoregression (VAR) model is estimated to account for stationarity in the time series. The Breusch Godfrey test for the resulting model affirms that the variables of interest are not serially correlated. The results also reflect a stronger influence of those policies that are relatively weaker in nature but which on the whole also affect private residential prices. Policies that are stricter reflect less significance in affecting private residential prices.

A volatility model was also formulated to help to further the understanding of the changes in the private residential price index in relation to the residential market uncertainty. The findings suggest that volatility of the Singapore private residential sector tend to correspond to those periods in time when residential prices are declining, and that government policy announcements tend to occur during changing volatility periods.