An Econometric Model of the Israeli Housing Market
In this paper we report our efforts to estimate an econometric model of the Israeli housing market estimated from quarterly data over the period 1974-90. The principle endogenous variables in the model are housing starts and completions, the stock of housing, house prices and rents. The specification of the model draws on capital asset pricing theory in which account is taken of stock-flow phenomena that are inherent in the housing market. At a given point in time the stock of housing is fixed and house prices are treated as the price of a capital asset which clears the asset demand for housing. At the same time house-building is motivated by profitability which reflects the level of house prices. Increased building activity raises the stock of housing over time which, in turn, feeds back on to house prices.