Housing and consumption in Spain

Abstract

The impact of macroeconomics variables on housing market is largely analysed in the literature. The usual way where changes on economic variables are transmitted to housing market is through demand factors, affecting to, for instance, the level of household waged-income or to house building investor’s expectations. Macroeconomics shocks on housing markets have not similar effects to those affecting other goods and they are different depending on geographic situation and market characteristics. The aim of this paper is to contrast if a relationship between changes on general economic conditions, showed as changes on prices or interest rates, and housing behaviour exists and how it works addressing housing absorption. It is say, how they impact on demand-side housing factors to clean the market. To do so, we extract cycle on housing absorption and compare it to business cycle using time series techniques to demonstrate their relationship. We concentrate this analyse in Spanish market during a period from 1975 to 2000. Results give evidence about how housing absorption use to be concentrated in some short periods generating boom and recession cycles on housing that are, in some of them, independent from business one. Expectations on inflations appears to be one of the main reasons to take housing consumption decisions, causing this characteristic phenomenon.