The Convergence of Regional House Prices in the UK

Abstract

The ripple effect hypothesis implies a long-run convergence of regional UK house prices. However, despite many authors believing in the existence of such an underlying constancy, statistical evidence has yet to be presented supporting this implication. In this paper, an alternative approach is proposed to analyse regional house price ratios. In contrast to the findings of previous studies, application of this new procedure results in the detection of widespread convergence of house prices in a number of regions of the UK. The results suggest that the failure of previous analyses to uncover convergence is due to an underlying asymmetry in the adjustment process being ignored. Interestingly, the form of asymmetry detected varies between regions. While regions in the South East experience faster convergence following downswings in prices, other regions exhibit more rapid convergence following increases in prices.