Are prices of New dwellings different? A spectral analysis of UK property vintages

Abstract

The work makes two contributions to the literature on dynamic house prices. First, a house price ripple in cycles from Modern to Older dwellings is revealed and, second, as New housing is shown to have lower volatility than the other two. Using spectral analysis, it is argued that there is a 7½-year repeat buyer-second-hand cycle and a five year, first time buyer-New housing cycle, common to three house price vintages. These cycles reinforce each other every 15 years, which corresponds with a Minsky super-cycle in housing finance. The equity of the owner–occupier is fortified by higher house prices whereas New builds extract embedded equity from the market. Through programmes like Help-to-Buy 1, Government should support builders and facilitate market access to FTBs. However, to address the greater price instability that should follow, Government should impose a capital gains tax on the house seller.

Keywords:

• spectral analysis
• UK house prices
• housing vintages

Public Interest Statement

The repeat buyer is the driver behind a 7.5-year cycle in UK house prices, whereas the first-time buyer is more closely linked to the shorter cycle. These two cycles, evident in construction expenditure and house prices, would reinforce each other every 15 years, reflecting perhaps a Minsky super-cycle of that order in housing finance.

A recent policy initiative in the UK, the Help-to-Buy 1 scheme, seeks to support first-time buyers and the construction of New housing. Both of these should reduce price volatility in the market. Help-to-Buy 2, which supports all vintages and all buyers, would fortify the market power of the repeat buyer, which should increase price volatility and hinder affordability. For greater price stability, Government should impose a capital gains tax on the house seller.

Additional information

Funding

Funding. The authors received no direct funding for this research.

Notes on contributors

David Gray

David Gray is academic leader of the Division of Accounting, Finance and Economics at University of Lincoln. His interests include: House Price Dynamics, Exchange rates and Contagion, and Regional Labour Markets. This contribution can be seen as part of a theme concerning ripples in house prices.