An Empirical Analysis of the Determination of House Prices in the United Kingdom

Abstract

Between the first quarters of 1970 and 1980 the average price of new houses in the United Kingdom increased five-fold. Over the same period building societies grew to become major financial institutions, attracting almost 50 per cent of the personal sector's holdings of liquid assets, and responsible for more than 85 per cent of house purchase finance. This paper sets out to examine the extent to which building societies have been responsible for the rapid acceleration of house prices and indicates the other main determinants of this phenomenon. The analysis is extended to a discussion of recent econometric research into house price determination and arrives at a more general specification, employing an error-correction estimation methodology.