RESEARCH ON HOUSING BUBBLES IN THE CAPITALS OF THE BALTIC AND CENTRAL EUROPE *

Transcription

1 RESEARCH ON HOUSING BUBBLES IN THE CAPITALS OF THE BALTIC AND CENTRAL EUROPE * Ryis Krušinskas Kaunas Universiy of Technology, Lihuania, ryis.krusinskas@ku.l Absrac Economic prosperiy was no only he Balic saes, oher Cenral European counries in he region, such as Poland, Slovakia, he Czech Republic and Slovenia also faced worldwide growh - boom in housing prices which exceeded mos analyss' forecass and raional expecaions. Therefore, his aricle examines and assesses how he global financial crisis, wha sared in he housing secor, affeced similar economic developmen level counries by he calculaion of price o income mehod approach for housing bubble size esimaion in he Balic counries and Cenral European counries capials. Obained resuls reveal ha housing prices boom mosly affeced he Balic Saes capials. The larges housing bubble of all Cenral European capials was formed in Warsaw. Improvemen of he economic siuaion, rising inhabians income, decreasing unemploymen, rising prices for consrucion and profiabiliy of housing invesmen, a he same ime rising issuance of housing loans is creaing a highly favourable condiions for he housing price bubble formaion. Keywords: housing bubble, price o income mehod. JEL Classificaion: G0, G9, G20, G2 Inroducion As rapid globalizaion is aking place, during he pas few decades considerable number of scieniss (Bjöklund & Söderberg, 999; Case & Shiller, 2003; Helbing, 2003; Belinskaja & Rukauskas, 2007; Khumpaisal & Chen, 2009; Goodman & Thibodeau, 2008; Tupėnaiė & Kanapeckienė, 2009; Èadil, 2009; Azbainis, 2009; Kuodis, 2004; Vanichvaana, 2007; Macdonald, 200) focus on analysis of housing bubbles, idenificaion of heir causes, developmen of mehods for calculaion of he exen of housing bubbles, because formaion and laer ineviable collapse of price bubbles hisorically caused significan problems for susainable developmen of he economy. The laes example is he global financial crisis of 2008, which sared from collapse of he price bubble in he real esae marke of he USA. During he economic boom housing prices were growing rapidly no only in he Balic Saes bu in many oher European counries as well. Balic and Cenral European counries (Poland, Slovakia, Czech Republic, Hungary, and Slovenia), which joined he European Union in he same year (2004) also faced he propery housing prices boom, which was aking place around he world. Thus, i is very imporan o examine and assess how he global financial crisis affeced he housing secor in counries wih similar level of economic developmen. The purpose of he presen aricle is o esablish and compare exens of housing bubbles in capials of Balic and Cenral European counries. Research mehods sysemaic lieraure analysis, logical comparaive and generalizaion analysis, mahemaical saisics mehods. Evaluaion of he real esae bubble using he price o income mehod Mosly in scienific lieraure hree main mehods of evaluaion of bubbles are discussed he fundamenal facors which have an impac o housing supply and demand mehod, price o ren mehod and price o income mehod. There are no clear indicaions when and under wha circumsances each mehod should be applied, as here is no mehod suiable for all cases. Afer analyzing he siuaion of he counry he mehod is chosen individually, i is possible o inroduce addiional variables o beer describe he curren siuaion of he marke. Besides i was noiced ha no all counries fully or a leas parially supply he indicaors necessary for he mehods of analysis of he curren siuaion in he counry. The chosen mehod of price o income shows ha he price of housing is dependen on he income of residens, i.e. he price of housing canno grow raionally if he residens have no income. The research uses no specific prices of housing, bu a quarerly of he prices of housing, as well as income, which is he average monhly salary expressed in quarerly es afer deducing axes. Salary of one person is chosen for he research as income of a household can reflec incorrec or inaccurae informaion, as income in he same household can * This research was funded by a gran (No. TAP LU 09/202) from he Research Council of Lihuania 480

2 be calculaed for a marke player, who is no a housing marke player, e.g.: an unemployed person who has no plans of employmen and no inenions of buying housing in he neares fuure. The research does no evaluae he inflaion of he analyzed counries as i affecs boh he prices of housing and he income. The saisical indicaors of each counry necessary for he applied mehod were colleced from he saisical and real esae agency daa bases of he individual counries. Indexes are calculaed using he formulas of he price o income mehod. The salary and housing price is calculaed using he following formulas (Abzainis, 2009): V V V = () V here - V - average housing price for - period, V 2000 : = 00 V - average housing price for - period. The of average salary afer deducing axes is calculaed in he following way: period,, V - average housing price for INC INC INC = (2) INC here - INC - of average monhly salary afer deducing axes for - period, INC 2000 : = 00, V - average monhly salary afer deducing axes for period, V - average monhly salary afer deducing axes for - period. The es of housing price and monhly salary afer deducing axes is expressed as: V PI = (3) INC Evaluaion of he housing bubble of he capials of he Balic Saes The las decade saw he consan rise of real esae prices in hree Balic Saes, Lihuania, Lavia and Esonia, he prices sared dropping during he global financial crisis and afer reaching he price peak. When prices are consanly rising no in proporion o income of residens, he real esae marke faces a siuaion called real esae price bubble in economic lieraure. The phenomenon when he prices reach heir peak and sar dropping suddenly is called bursing of he housing bubble in economic lieraure. The research analyzes he economic indicaors for he capials of he Balic Saes from s quarer of 2000 o 2 nd quarer of 200. Applying he chosen mehod he size of he housing bubble was calculaed for he analyzed period in he capials of he seleced counries. During he heoreical research i was noiced ha he majoriy of scieniss calculae he daa of saisical es before saring he empirical sudies: he average, he sandard deviaion, he maximum and minimum values. The calculaed saisical indicaors of he average, he sandard deviaion, and he maximum and minimum values (see Table ) confirm ha he growh of he price of housing was no in proporion o he growh of salary. As hese es differ grealy he beginnings of a housing bubble can be already discerned. Table. Saisical daa of es of salary and he price of housing for Vilnius, Riga and Tallinn Indeksas Minimum value Maximum value Average Sandard deviaion Vilnius, 2000:I Q - 200: II Q Index of salary afer deducing axes Housing price Riga, 2000:I Q - 200: II Q Index of salary afer deducing axes Housing price Tallinn, 2000:I Q - 200: II Q Index of salary afer deducing axes Housing price

3 Table shows ha he saisical daa for all hree analyzed capials are differen. Bu boh he sandard deviaion (43.32 %) and he range of change of he of he price of housing (from % o %) are greaes for Tallinn in comparison o he daa for Vilnius and Riga. The change of salary in Tallinn during he analyzed period was no grea (from 9.4 % o %). We could conclude ha he housing bubble is bigges in Tallinn as compared o he oher wo capials. The saisical daa on he prices of housing and salary for Riga are very similar, only he sandard deviaion for he price of housing is slighly bigger han he sandard deviaion of salary, herefore according o he available saisical informaion we can conclude ha a raher small bubble of housing prices had formed in Riga or conversely he housing bubble was big, bu afer reaching he peak of he housing price he housing prices had o plumme. The saisical daa of he of he price of housing for Vilnius are almos all higher han he daa of he of salary. I is obvious ha he growh of he prices of housing (from 86.6 % o %) was no in proporion o he growh of salary (from 00 % o %). As hese es differ grealy he beginnings of a housing bubble can already be discerned. However hese saisical daa for he capials reflec only very absrac informaion, as he specific quarerly daa is no aken ino accoun, he change of individual indicaors is no analyzed. In order o calculae he size of he housing bubble he research needs o compare he es of he price of housing and salary in he capials, calculae he correlaion of hese wo indicaors for he analyzed period. The obained resuls and summarized noes are presened in Table 2. Capial Table 2. Summary of housing bubbles in he capials of he Balic Saes Size of he bubble, % Vilnius 47. Riga Tallinn Summary The highes value of he housing bubble in Vilnius was recorded in he middle of The bigges difference beween he prices of housing and salary had formed hen. Though laer he prices of housing coninued o grow slighly, he growh of salary was somewha bigger. Afer he bubble burs he prices of housing reached he level of prices of he end of 2005 in he 2 nd quarer of 200. The housing price bubble was smalles in Riga ou of all capials of he Balic Saes. The bigges housing bubble in his ciy had formed in he 3 rd quarer of The consequences of he bursing of he housing price bubble in Riga were he mos significan. In he 3 rd quarer of 2009 he housing prices dropped almos o he iniial value of he analyzed period ( s quarer of 2000). While he salary decreased very slighly. The bigges housing bubble of all of he capials of he Balic Saes had formed in Tallinn during he analyzed period beween he s quarer of 2000 and he 2 nd quarer of 200. I formed in he 3 rd quarer of Unil his quarer he housing prices had grown several ime more han he salary. When he bubble burs in he middle of 200 he prices reached he prices of he beginning of Evaluaion of he housing bubble of he capials of Cenral European counries Cenral European counries, such as Slovakia, he Czech Republic, Poland and Slovenia, joined he European Union he same year as he Balic Saes (Lihuania, Lavia, and Esonia) analyzed above. All hese counries joined he European Union on May Coninuing he research applying he price o income mehod i is relevan o analyze he size of he housing bubble had formed in he capials of he Cenral European counries. These counries are similar o he Balic Saes boh in erms of GDP per capia and oher economic indicaors. However afer joining he European Union he economy of some counries grew and remained raher sable during he global economic crisis, he economy of oher counries shrank significanly. Afer joining he European Union some counries (Slovakia January 2009, Slovenia January 2007) inroduced he common currency of he European Union he euro. And ha means ha afer becoming members of he European Union hese counries became economically sronger and me he requiremens se by he European Union o inroduce he euro. Euro has been inroduced only in Esonia (from he beginning of 20) ou of he Balic Saes analyzed above. The research covers economic indicaors of he capials of he Cenral European counries analyzed in he research from he s quarer of 2003 o he 2 nd quarer of 200, as no all he saisical daa bases of he analyzed counries provide he daa from 2000 (Poland, he Czech Republic do no provide he housing price indicaors from 2000). The research uses he es of housing prices and salary, here will be no significan 482

4 difference if he seleced period will be from 2003, as i is known ha he housing bubble in he majoriy of he European counries sared forming in he beginning of Applying he chosen price o income mehod he size of he housing bubble ha had formed in Braislava, he capial of Slovakia, Prague, he capial of he Czech Republic, Warsaw, he capial of Poland, and Ljubljana, he capial of Slovenia, was calculaed. Anoher Cenral European counry Hungary does no provide he necessary daa neiher in he saisical daa bases of he counry nor in oher saisical informaion websies, herefore i will no be analyzed in greaer deail. As in he case of he capials of he Balic Saes he saisical indicaors of he capials of he Cenral European counries are calculaed. Table 3 presens he saisical daa of es (he average, he sandard deviaion, he maximum and minimum values) for Ljubljana, Prague, Braislava, and Warsaw. Table 3. Saisical daa of es of salary and he price of housing for Ljubljana, Prague, Braislava and Warsaw Index Minimum value Maximum value Average Sandard deviaion Ljubljana, 2003: I Q 200: I Q Index of salary afer deducing axes Housing price Prague, 2003: I Q 200: I Q Index of salary afer deducing axes Housing price Braislava, 2003: I Q 200: I Q Index of salary afer deducing axes Housing price Warsaw, 2003: I Q 200: I Q Index of salary afer deducing axes Housing price As can be seen from Table 3 he calculaed saisical daa are raher unsable. However we can sae ha he siuaion in he capials of he Cenral European counries was more sable in comparison wih he saisical informaion for he capials of he Balic Saes. Only he saisical daa for Warsaw differ slighly from all he oher capials, he siuaion somewha closer o ha in he capials of he Balic Saes. A big difference beween he change of he housing price and he salary is seen in Warsaw, as all calculaed variables, including he sandard deviaion of he housing price (57.23 %), average (8.92 %), and oher daa, are quie higher han he calculaed salary variables. I can be concluded ha Warsaw had he bigges housing bubble ou of all analyzed capials of he Cenral European counries. The es of salary and housing price are quie similar in he capial of he Czech Republic. The average of salary (29.44 %) is even slighly higher han he average of housing prices (33.79 %). I can be saed ha here was no big conras beween he growh of housing prices and salaries in his ciy, as i has a srong influence on he formaion of he housing bubble, and even if i had formed during some period, laer his difference levelled ou. However oher presened saisical daa show ha a housing bubble had formed in Prague. The saisical daa for Braislava are very similar o hose for Prague. Thus he housing prices and he salary changed in he capials of hese counries in a similar manner. The calculaed saisical daa for Ljubljana a slighly more differen, i appears ha he values of he housing price were higher han he values of he salary almos in all respecs. The sandard deviaion of he housing price (32.2 %) was wo imes higher han he sandard deviaion of salary (6.06 %), which means ha he spread of he housing price close o he average was much greaer han ha of he salary. This means greaer real esae invesmen risk, which means ha a housing price bubble had formed in his counry according o he calculaed saisical informaion. The size of he calculaed housing bubble, housing prices in he capials and noes on comparison of he salary es are presened in Table

5 Capial Table 4. Summaries of he housing bubbles in he capials of he Cenral European counries Size of he bubble, % Ljubljana 30.8 Prague Braislava Warsaw Summary This capial had he smalles housing bubble ou of all he analyzed capials. Slovenia also ranks firs among he analyzed counries according o such facors as GDP per capia. This counry was he firs ou of he analyzed counries o inroduce he euro. And his means ha i me he requiremens according o he inflaion indicaor and oher crieria. The bigges housing bubble had formed in Ljubljana in he middle of When he bubble burs in he 2 nd quarer of 200, he prices reached he level of he 3 rd quarer of The growh of housing prices and salary was mos similar beween Prague and Braislava. Afer resoraion of independence in 993 he Czech Republic and Slovakia reained close relaionships wih respec o sae managemen and oher aspecs. I was calculaed ha he bigges housing bubble in Prague had formed during he 3 rd quarer of In he 2 nd quarer of 200 he housing prices reached he level of prices of he 2 nd quarer of Slovakia was he second Cenral European sae o inroduce he euro. I is no wonder ha he housing bubble in Braislava was only slighly bigger han in Ljubljana. The bigges housing bubble had formed in he s quarer of The salary coninued o grow, and when he housing price bubble burs in he 2 nd quarer of 200, he prices dropped o he level of he end of Ou of all he capials of he Cenral European counries he bigges housing bubble had formed in Warsaw. The highes value of he housing bubble was recorded in he s quarer of The housing bubble, when he growh of he housing price was much more rapid han he growh of salary, was similar o he siuaion in Riga. However when he bubble burs, he siuaion was compleely opposie. The prices lower insignificanly, i is likely ha he housing marke in his capial should shrink some more. The research performed using he modified price o income mehod esablished ha he growh of he housing prices had he bigges influence on he capials of he Balic Saes. The Balic Saes are slighly behind he analyzed Cenral European counries wih respec o such economic indicaors as GDP, average salary, inflaion, ec. However i is no he mos imporan facor for formaion of he bigges housing bubbles in he capials of he Balic Saes. I was influenced by he endencies of changes of he said fundamenal facors. Wih improving economic siuaion, growing income of residens, decreasing unemploymen, growing consrucion prices and profiabiliy of invesmen ino real esae all of his adds o he formaion of he housing price bubble. Irraional facors, such as household expecaions, speculaions in he housing marke, which conribue grealy o he rapid growh of he housing prices, were no analyzed in deail. In he case of some capials of Cenral European counries (Braislava and Prague) i was noiced ha he growh of prices was similar due o close cooperaion of hese counries (impor/expor ies). I was esablished ha he housing bubble was smalles in he counries which had inroduced he euro. Conclusions. In he course of he sudy i was esablished ha capials of he Balic Saes winessed he formaion of he following housing bubbles: Vilnius 47. percen, Riga percen and Tallinn percen. Cenral European capials winessed he following housing bubbles: Ljubljana 30.8 percen, Prague percen, Warsaw percen. 2. I was found ha in he bigges housing bubble was formed in Tallinn in he hird quarer of 2006 (52.28 percen), while he smalles (30.8 percen of a house price) was found in he Slovenian capial Ljubljana in he middle of However, in he firs quarer of 2007 he bigges housing bubble was in Warsaw (44.02) and i was he bigges of all Cenral European capials. 3. The sudy revealed ha he bigges collapse of he price bubble ook place in he hird quarer of 2009 in Riga and prices here fell o he value las seen in he firs quarer of To summarize resuls of he research, i may be said ha he Balic Saes experienced he bigges impac of he growh in housing prices. 4. This was affeced by rends in changes in fundamenal facors, when in he conex of improving economic siuaion, growing income of he populaion, falling unemploymen, growing

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