Bubbles and Crashes in the Australian Residential Property Market and 'Monopoly' in Real Life - The Housing Market and Inequality
Topic: Bubbles and Crashes in the Australian Residential Property Market
Speaker:Dirk Baur , University of Western Australia
Abstract: This paper analyzes the Australian property market, the relationships between cities, houses and units, and the stock market with a focus on bubbles and crashes. Using monthly housing and unit prices for all eight capital cities we find that bubbles are more frequent, last longer and are more synchronized than crashes. Also, crashes do not immediately follow bubbles and are more prevalent across apartment units. Despite the existence of corrections in property prices the average returns and the risk-return relationships are more favorable in the property market than the stock market. We also identify a strong and positive change in correlations between the stock market and the property market around the global financial crisis consistent with financial contagion. A Vector Autoregression (VAR) further shows that policy interest rates and stock market returns significantly influence property prices which in turn influence the cash rate and the stock market. The relative stability of Australian property prices over the last 20 years suggests that policy makers played a role by providing an accommodating environment.
Topic: 'Monopoly' in Real Life - The Housing Market and Inequality
Speaker :Dirk Baur , University of Western Australia
Abstract:This paper uses a simple model based on the board game Monopoly to simulate the drivers of house prices and inequality. The starting capital, income per round (wage), rental income, rental costs and the timing of home ownership all matter for the evolution of house prices and inequality. More specifically, the simulations show that (i) inequality is a frequent phenomenon in the game, (ii) house prices increase both with higher starting capital and higher wages, (iii) wealth inequality falls if wages are sufficiently high relative to house price growth and (iv) inequality is extreme when players do not own any property. We compare the results with house prices and disposable income of eight industrial countries and find striking similarities with the model outcomes despite the model's simplicity.
A light lunch will be provided at 1p.m. Please RSVP for catering purposes to Mala Kapahiby 12 noon on Monday 24th April.