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Is There Long-run Convergence among Regional House Prices in the UK?

Department of Economics, Waikato University Management School, Waikato University, Hamilton, 3240, New Zealand, holmesmj{at}waikato.ac.nz

Arthur Grimes

Motu Economic and Public Policy Research, Level 1, 93 Cuba Street, PO Box 24390, Wellington, New Zealand, arthur.grimes{at}motu.org.nz

This paper investigates the long-run convergence of regional house prices in the UK. Existing studies have failed to reach a consensus on whether or not regional house prices exhibit long-run convergence with each other. The application is proposed of a new test involving unit root testing of the first principal component based on regional—national house price differentials. Using mix-adjusted quarterly data for 1973—2006, it is found that the first principal component is stationary. This suggests that all UK regional house prices are driven by a single common stochastic trend. Further analysis suggests that those regions that are more distant from London exhibit the highest degrees of persistence with respect to deviations in house price differentials.

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