UK housing bubble case study analysis: The ‘‘behaviour’’ of UK housing bubbles and the ‘‘affordability’’ parameter.
||UK housing bubble case study analysis: The ‘‘behaviour’’ of UK housing bubbles and the ‘‘affordability’’ parameter.
||21st Annual European Real Estate Society Conference in Bucharest, Romania
||Purpose – The economic, political and social significance of housing bubbles is enormous. Since the mid-1980s, the UK housing markethas experienced two succeeding bubble-bust cycles, in the periods 1985/6-1989 and 2001/2-2007. These bubbles differed both in lengt and in how they ended. However, the affordability benchmarks behaved in almost exactly the same way in both cases. The majority of authors identify two ways in which a bubble can end (i.e. after the bust 'end regimes'): prices could crash suddenly, in a relativel short period of time or can move in a transition to another regime, such as slow deflation. The aim of this paper is to adjust this theory and to examine whether and why the way a housing bubble stops growing (i.e. 'growth-end regimes') affects its length, how afordability may be relevant to this and whether housing affordability can guide our investments decisions. Design/methodology/approach – The methodology focuses on cross-case analysis of the above two UK housing bubbles, using research methods such as literature review, historical analysis, regression-correlation analysis, normality tests and quality control charts. Findings – The findings reveal that the way a housing bubble ends is inherently related with affordability and that can also largely explain its length. Moreover, certain rates of housing affordability can generate a simple core theory for optimal investment decision-making in the UK housing market. Originality/value – This is the first study that examines whether the way a housing bubble stops growing affects its length and how affordability can guide our investments decisions. The paper also presents a novel use of quality control charts in the UK housing market. The results of this study can shed light on the extent to which theories of bubble end-regimes and affordability indices can offer better investment information. This paper will help real estate researchers, professionals (appraisers) and individual mortgage borrowers to better understand the nature of housing investment, thus contributing by reducing stress in the residential housing market.
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||D : Housing Markets & Economics
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