Residential Construction Activity in OECD Economies

Four years after the burst of the housing bubble in some of the main world economies, the recovery does not follow a homogeneous pattern among them. For instance, some economies, like the US, have experienced a weak recovery, while the situation in other countries, like Spain, it is still far from even such. In this context, it is necessary to pay attention to the evolution of residential investment, which traditionally has played an important role in the revival of the economy after previous episodes of bubbles in the housing market. We propose a theoretical explanation of the determinants of real residential investment in order to identify those channels which can be used by policy makers to soften the evolution of cycles in this particular market. In the second stage of our study, we estimate our theoretical framework utilising a sample of 18 OECD countries for the period 1970 to 2011. We utilise a specific linear function for each economy, which we estimate by applying the standard cointegration technique that permits us to obtain a long-run equilibrium relationship and analyse the dynamics in terms of a short-run relationship along with an error-correction term.This is the accepted manuscript. The final version's available from Wiley at http://dx.doi.org/10.1111/manc.1207