- THE DETERMINANTS OF HOUSE PRICES IN THE TWO-TIER HOUSING M...
THE DETERMINANTS OF HOUSE PRICES IN THE TWO-TIER HOUSING MARKET IN GUERNSEY
With an area of just 24km2 and a population of over 65,000,
there is an underlying shortage of property in Guernsey, and this,
combined with the island's large financial sector, its low taxes
and island life, has put additional pressure on the price of
housing. Guernsey is a particularly interesting case because of its
unique two-tier housing market system, which has a 'local market'
for locals and an 'open market' for non-locals.
In the final analysis, the critical factor is how strong and
well equipped the housing markets are to withstand shocks, i.e.
their resilience. The most resilient markets are particularly those
in which domestic demand is less dependent on external demand and
therefore weaker "shock absorbers" allow external fluctuations to
produce larger housing price volatility (Loayza and Raddatz, 2008).
In both the local and open markets, favourable cyclical factors
have played a role but a global slowdown could set back some of the
recent progress and this might have been the case since December
2006 in the local housing market. However, both markets are likely
to be open to external shocks from the UK and the rest of the world
because of Guernsey's small size. In the open market, external
risks are considerably attenuated by the greater income most people
who participated in this market. Based on the data, it appears that
the open market, while being more volatile, has better growth
potential, less uncertainty, and may be more resistant to external
shock, particularly because of the extreme supply constraints and
the high demand.
This study was based on a data over a period of six and a half
years and also important determinants were identified, future
research may uncover other important determinants. This is
particularly important in the open housing market, because even
though GDP and interest rates were identified as major
determinants, these only accounted for about half of the variance
in house prices and so the identification of other key determinants
is important. Similarly, in the local housing market, several
variables performed in ways that were not hypothesised and so this
is an area that warrants further examination.