Question

Discuss the demand and supply shifters of residential property, and any economic, financial and other variables that should be considered when running a regression for residential property?

Answer 1

The most important demand shifter for residential property is the availibility of credit. Since most buyers use mortgage loans to finance their house, easy availability of credit (as in the pre-2008 recession world), will increase the demand. The demand can also increase if people expect their incomes to rise in the future or if they are are presently high. Thus, the expectations of overall growth, GDP, can also influence house buying decisions. Owning residential property is also a status symbol, and if the social tastes change, this may affect demand.

Supply of residential property can shift due to bad weather conditions which lead to delays in construction and a decrease in supply. The availability of workers is another important factor and any shock (like the current COVID-19) to supply of labor affects supply of houses. There may also be changes in regulation which makes houses harder or easier to build.

Thus, in running a regression for residential property. some important variables to consider are: GDP growth, inflation, household incomes, cost of production, the interest rate on housing loans, perceptions of status, cost of labor and other equipment required in housing, and weather conditions.