House price convergence: evidence from India

Understanding trends in regional house prices and whether they converge to a single steady state or form clusters are important issues. These trends have been studied at length in respect to advanced and emerging market economies (EMEs). However, the trends are not understood well in the context of a major and populous EME such as India, which can offer vital policy insights for other countries. Using residential house price data for fifty cities, this study showed that house prices do not converge to a single steady state in India. Rather these prices form three clusters wherein they converged to their respective steady-state paths and displayed conditional convergence. Higher initial house price, home loan, rent, population density and literacy were associated with an increased probability of higher house price club. City inflation, on the contrary, increased the chances of association with lower-price clubs. Similar dynamics of housing clusters can enable policymakers to probe the common driving factors and accordingly devise cluster-specific policy measures. There is no study, so far, on club convergence of house prices for India; so this study contributes to this gap in the literature.