Dariusz Pęchorzewski, Phd

Szczecin Renovation Centre

Institute of Economic Analyses, Diagnoses and Forecasts

Examination of the potential determinants of demand on the Polish residential housing

market in the years 1995-2008

Introduction

Reactions to crisis in global economy:

Increasing uncertainty in the global economy

Desire to take better economic decisions

Search for accuracy and stability

Attempts to find reliable aspects of the economy

Research

Study of the relationship between demand for and prices of

real estate, and standing of the economy measured by:

GDP dynamics,

level of unemployment,

main index of Warsaw Stock Exchange – WIG-20,

interest rates.

Research cont.

Examination of increasing and decreasing trends in potential

determinants of demand during the research period

in order to

analyze the impact of positive and negative changes on the

real estate market.

Research cont.

Time delays between variables (determinants)

Capture time in which real estate market responds to

changes in the determinants

Research cont.

Variables describing development of real estate market:

Realized demand for dwellings - sum of prices received for

all transactions registered by the tax office.

Average transaction price of 1 square meter during research

period in the right-bank part of Szczecin.

* - The first three quarters of 2008. Figure 1. The evolution of demand for dwellings in the right-bank part of Szczecin in the years 1995-2008. Source: Own calculations based on data from the 3rd Tax Office in Szczecin.

Figure 2. Evolution of the average transaction price of 1 sq. m of dwellings in the residential housing market in the right-bank part of Szczecin in the years 1995-2008. Source: Own calculations based on data 3rd Tax Office in Szczecin.

Potential determinants of real estate market

Stock exchange index WIG-20 - its formation during the

period can be divided into four stages - two increases and

two decreases.

Phases:

- 1st phase - period of growth from 1995 to 1999,

- 2nd phase - decrease in the period 2000-2003,

- 3rd phase - four-year phase of increases, terminated by the

current global financial crisis,

- 4th phase - decrease.

Potential determinants of real estate market

Average levels of stock market index

- force and direction of relationship with demand and

average prices was measured using the Pearson

correlation coefficient.

- relationship studied both with and without time delays

(delays taken into account increased quarterly from 1

quarter to 2 years).

Delay in quarters

1st phase - increase

2nd phase - decrease

3rd phase - increase

0 0,435468 -0,29483 0,499273

1 0,448952 -0,08711 0,514788

2 0,479174 -0,31443 0,532014

3 0,435563 -0,72401 0,608657

4 0,551499 -0,86036

5 0,570784 -0,62045

6 0,330244 -0,51472

7 0,223162 -0,42466

8 0,389849 -0,35328

Table 1. Pearson coefficients of correlation between the development of WIG-20 and the demand for dwellings in the right-bank part of Szczecin.Source: Own calculations.

Delay in quarters

1st phase - increase

2nd phase - decrease

3rd phase - increase

0 0,692473 0,824122 0,888765

1 0,681808 0,847866 0,918871

2 0,703617 0,783328 0,938299

3 0,721791 0,422045 0,958861

4 0,719082 0,070917

5 0,73618 -0,08488

6 0,67653 -0,4496

7 0,627236 -0,60162

8 0,668871 -0,62818

Table 2. Pearson coefficients of correlation between the development of WIG-20 and the average price of 1 sq. m of residential dwellings in the right-bank part of Szczecin.Source: Own calculations.

Potential determinants of real estate market

Interest rates - price of money.

Six sub-periods were identified in the years 1995-2008.

Delay in quarters

1st phase - decrease

2nd phase - increase

3rd phase - decrease

4th phase - decrease

0 -0,75612 0,037243 -0,69372 -0,52182

1 -0,73458 0,219332 -0,58937 -0,53453

2 -0,51336 -0,77092 -0,3434 -0,15425

3 -0,58895 -0,75305 0,111605 0,265717

4 -0,73062 0,010939 0,128363 0,024501

5 -0,69218 0,826691 -0,21114 -0,1627

6 -0,46096 0,735308 -0,47311 -0,28562

7 -0,31417 0,917878 -0,46011

8 -0,21322 0,621917 -0,42857

Table 3. Pearson coefficients of correlation between changes in interest rates and the demand for dwellings in the right-bank part of Szczecin.Source: Own calculations.

Delay in quarters

1st phase - decrease

2nd phase - increase

3rd phase - decrease

4th phase - decrease

0 -0,93033 -0,26155 -0,464429 -0,46232

1 -0,93111 -0,89778 -0,13707 -0,5316

2 -0,93311 -0,83361 -0,47593 -0,60861

3 -0,93236 -0,84147 -0,63777 -0,70851

4 -0,91563 -0,86902 -0,72295 -0,7969

5 -0,89801 -0,74257 -0,80158 -0,87091

6 -0,87062 -0,87876 -0,87729 -0,942

7 -0,85549 -0,74062 -0,87504

8 -0,83405 -0,70441 -0,88753

Table 4. Pearson coefficients of correlation between changes in interest rates and the average price of 1 sq. m of residential dwellings in the right-bank part of Szczecin. Source: Own calculations.

Potential determinants of real estate market

Rate of unemployment

In the years studied, three phases of changes in the

unemployment rate in Szczecin were discerned.

Delay in quarters

1st phase - decrease

2nd phase - increase

3rd phase - decrease

0 -0,75589 0,44466 -0,58874

1 -0,75144 0,553034 -0,63197

2 -0,66356 0,465259 -0,11207

3 -0,56409 0,491522 0,351762

4 -0,68687 0,571736 -0,16016

5 -0,74 0,642686 -0,46343

6 -0,50667 0,641012 -0,60048

7 -0,55548 0,738169

8 -0,57003 0,812109

Table 5. Pearson coefficients of correlation between changes in the unemployment rate and the demand for dwellings in the right-bank part of Szczecin. Source: Own calculations.

Delay in quarters

1st phase - decrease

2nd phase - increase

3rd phase - decrease

0 -0,95329 -0,25951 -0,86846

1 -0,93675 -0,22324 -0,92106

2 -0,94439 -0,19802 -0,94529

3 -0,94451 -0,07907 -0,94541

4 -0,94614 0,100718 -0,91749

5 -0,95961 0,265032 -0,90396

6 -0,94876 0,472813 -0,88731

7 -0,94554 0,630702

8 -0,92239 0,745256

Table 6. Pearson coefficients of correlation between changes in the unemployment rate and the average price of 1 sq. m of residential dwellings in the right-bank part of Szczecin. Source: Own calculations.

Potential determinants of real estate market

Dynamics of gross domestic product

During the study period, a total of six phases were

specified.

Delay in quarters

1st phase - decrease

2nd phase - increase

3rd phase - increase

0 0,037766 -0,40163 0,235926

1 0,41362 -0,33666 0,293524

2 -0,11855 -0,60652 -0,24607

3 -0,72144 0,630117 -0,43133

4 -0,84598 0,691342 0,287001

5 -0,80107 0,79637 0,236716

6 -0,77052 0,825276 0,560973

7 -0,39189 0,829215

8 -0,04725 0,847567

Table 7. Pearson coefficients of correlation between changes in GDP and the demand for dwellings in the right-bank part of Szczecin. Source: Own calculations.

Delay in quarters

1st phase - decrease

2nd phase - increase

3rd phase - increase

0 0,898735 0,747746 0,808805

1 0,926719 0,718523 0,821079

2 0,929896 0,765206 0,887067

3 0,856531 0,862252 0,936372

4 0,883245 0,842183 0,973398

5 0,508452 0,763716 0,915796

6 0,250143 0,826375 0,86243

7 -0,08609 0,814812

8 -0,48656 0,833575

Table 8. Pearson coefficients of correlation between changes in GDP and the average price of 1 sq. m of residential dwellings in the right-bank part of Szczecin. Source: Own calculations.

Main findings

The most important factor determining demand for dwellings during the period analyzed was shortage of residential housing.

This makes it very difficult to conduct research into regularities in the real estate market. It will not be possible to conduct more reliable measurements until the market is saturated.

Real estate market reacted more quickly to negative than to positive signals during the study period.

Negative signals caused quick response in demand and prices. Positive changes needed to consolidate in economy before strong reaction of real estate market occurred.

Summary

Results obtained should not be regarded as stabilized.

Some results may be burdened with a degree of randomness

or coincidence.

However, grounds for making conclusions about existing or

emerging regularities have been discovered.

Summary cont.

Development of Polish real estate market has lasted only 20 years.

Market mechanisms have been disrupted by attempts to adapt quickly to free market mechanisms.

There has been a qualitative change in the research period - Poland's accession to the European Union.

Study period included initial phases of global financial crisis.Therefore, search for regularities is difficult and subjective.

Observed relationships were strong and statistically significant.There is hope that it will be possible in the future to accurately

predict changes in the real estate market.

Thank you for your attention

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