Munich Personal RePEc Archive

Determinants of House Prices and New Construction Activity: An Empirical Investigation of the Namibian Housing Market

Sunde, Tafirenyika and Muzindutsi, Paul-Francois (2016): Determinants of House Prices and New Construction Activity: An Empirical Investigation of the Namibian Housing Market.

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Abstract

The study analysed the determinants of house prices and new construction activity in the Namibian housing market. This study also attempted to establish whether there is evidence of overvaluation of house prices in the Namibian housing market and this is important in identifying the possibility of a housing price bubble in Namibia. A restricted VAR model with a Johansen cointegration approach was used to analyse monthly data from January 2000 to December 2014. The results show that the house price index in Namibia has proved more sensitive to changes in population, mortgage loans, and inflation; while the construction activities were found to be more sensitive to the house price index and inflation. Granger causality results show that there is a bidirectional causality between the house price index and new construction activity in Namibia. The study also found evidence of overvaluation of house prices in the Namibian housing market, which may lead to a house price bubble in the Namibian economy. Namibian policymakers, through the Bank of Namibia, should come up with policies which ensure that most mortgages given by the banks are for constructing new houses instead of financing the purchase of existing houses.

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