The links between property and the economy - evidence from the British and German markets

Abstract

This study supplies empirical evidence on the dynamic interactions between the property markets in Germany and the United Kingdom and their country-specific macroeconomic environment. Using a VECM framework, the findings contribute to improving the evaluation of the properties' behaviour by considering a wide range of macroeconomic risk factors. On a long-term basis, we find remarkable similarities between both examined real estate markets with respect to significance, signs and magnitude of coefficients, despite essential differences in terms of market structure, conditions and performance. This suggests that the fundamental role of property markets in an economy dominates the country-specific characteristics in the long run. However, the distinctive features of the national property markets, including differences with respect to the financial systems, are primarily relevant during the short-term adjustment process back to the long-term equilibrium.