Factors influencing asymmetries in Saudi Arabia's housing market

Abstract

The article aims to examine the determinants of the asymmetries in the housing prices index (HPI) in 13 Saudi Arabian administrative regions. The authors employ a panel Vector Auto-regressions during the period 2014Q1-2023Q4 to measure the role of speculative and fundamental determinants in HPI growth across 13 regions. Furthermore, we use Least Square Dummy Variable method for the period 2015–2021 to analyze the asymmetry impact of region-specific determinants (economic, demographic, urbanization, geographic, and cultural variables) on HPI growth in 13 admirative regions. The results from the panel VAR model show that the reginal house prices growth is determined by the backward-speculative component (HPI's past values), the forward-looking speculation (Consumer Confidence Index), and the fundamentals variables (oil prices, employment, real estate loans, regional inflation, money supply, and building cost index). Furthermore, cross-section analysis using LSDV method reveals that the asymmetries in the HPI growth across 13 administrative regions is determined by the region-specific variables. These include backward-looking behavior, inflation, labor participation, population, health services quality, household size, inverse land supply, seaside density, temperature, and culture density. This study offers three key contributions to the literature. First, to the best of the author's knowledge, this is the first study that analyzes the asymmetries across Saudi Arabian regional housing markets. Second, while most studies focus on backward-looking speculation, overlooking forward-looking speculative factor, this analysis includes both. Third, the climate, geographical, and cultural determinants are largely ignored by the literature but this study incorporates these variables in the cross-section analysis.