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Housing Transactions and Macroeconomic Fluctuations: A Case Study of England and Wales

(by Sven Rady, with François Ortalo-Magné)

Journal of Housing Economics 13(4), December 2004, pp. 287-303

 

Abstract
This paper focuses on the underlying drivers for transactions of residential properties using England and Wales as a case study. We present a non-technical discussion of a theoretical framework that rationalizes the positive correlation of income, housing prices and housing transactions over the business cycle. We then extend the theoretical framework to explain how the credit market liberalization of the early 1980s, demographic changes and construction activity have affected the trend in housing transactions and contributed to making the 80s a period of exceptionally high transaction levels in England and Wales. We present evidence in support of the view that housing demand fluctuations have been the key driver of housing transactions, in particular, changes in housing demand from first-time buyers.

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