Regional unemployment and house price determination

Abstract

This paper investigates the effect of unemployment on house prices in the UK property market to give an indication of the nature of their relationship. By evaluating housing research, including unemployment variables, this paper gives an overview of the uses of the unemployment variable and show the lack of a specific focus on unemployment in house price research. Theories of unemployment are presented as being a component of housing demand. A composite model of house prices against supply and demand variables used in other research is constructed. Using regional UK panel data of a fixed effects panel regression at the national level, the resulting coefficient for unemployment is compared with similar findings from other studies, resulting in unemployment being shown to be statistically significantly negatively related to house prices. Then, using OLS, no real relationship was found in regional house price sensitivity to unemployment, and how relatively rich or poor a region is. This result was possibly caused by problems with the regression as previous research had indicated that relatively richer regions do have a greater sensitivity of house prices to unemployment