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Prepared by Giang Ho.
Weighted average of prices for single-family homes and owner-occupied flats.
The PTI at municipal level is calculated by dividing nominal property prices (weighted average of single-family houses and flats) by nominal average family incomes. The latter series is only available from 2000 onwards, and 2015 figure is not yet available.
Recent studies for Nordic countries using the same approach include Turk (2015), Claussen (2013) for Sweden, and Anundsen and Jansen (2013) for Norway. As we are most interested in the determinants of long-run equilibrium house prices in this study, a full-fledged error correction model with both long-run and short-run dynamics is not necessary.
The series for average personal disposable income at the municipal level is only available from 2002, so we use the unemployment rate series instead.
As mortgage interest rate is not available far back in time, we use instead an aggregate lending rate.
Calculated by dividing property tax payments by property value.
Asymptotically, the long-run equation may be consistently estimated by OLS even though the dynamics and endogeneity of some variables are ignored. In finite samples, however, ignoring the short-term dynamics may lead to substantial bias.
Specifically, starting in October 2015, the Reserve Bank of New Zealand introduced a new restriction on loans to property investors in the Auckland region with an LTV higher than 70 percent (i.e., to set a speed limit on such loans at close to zero). For all residential lending outside the Auckland region, the Bank proposed to increase the existing speed limit for loans with an LTV higher than 80 percent from 10 to 15 percent, to recognize relatively subdued housing market conditions outside Auckland.