1 Empirical Modelling of the Linkages Between Economic Growth and Housing Markets

Empirical comparisons are made of the way housing markets in Hong Kong, Korea and Singapore are linked to the wider economy. We show that a simultaneous equations model of housing and demand and supply can be used to capture the essential interrelationship, regardless of whether macroeconomic growth is regarded as an exogenous or endogenous influence on the housing market. Comparisons of the elasticities of demand show that GDP growth was a more significant determinant than price in both Hong Kong and Singapore. The price elasticities of demand for these two economies were also significantly affected by the Asian financial crisis (AFC). Despite its enormous disruption on the urban economic activities in Hong Kong and Singapore, the severe acute respiratory syndrome (SARS) epidemic had a smaller impact on their housing markets. We argue this represents evidence to support the hypothesis that economic growth is the main driving force behind these housing markets. Although the evidence for Korea is limited by the availability of data, we find that the AFC had a weaker effect on property demand compared to SARS. This is a sharp contrast with the other two economies. We conjecture that this suggests the housing market in Korea drives the economy rather than the other way around