Macroeconomic Determinants of Housing Prices in the Philippines

Abstract

Addressing the cause of escalating housing prices in the time of the COVID-19 pandemic is relevant but timely. Housing is both a consumption and an investment good and for many Filipinos, it is a dream worth going abroad for. This thesis studies the housing prices in the Philippines between 2000 to 2020. The overall objective of this thesis is to answer whether important macroeconomic factors can explain these housing prices. Using an econometric model, the Engel-Granger two-step approach captures the dynamic of long- and short-run relationships of the variables. The co-integration test result shows that GDP per capita is positively associated with housing prices by 1.24% in the long term, the inflation rate by 0.08%, and unemployment rate by 0.398%. Furthermore, the error correction model results show that GDP per capita negatively affects the housing price by 0.075% while the interest rate negatively affects it by 0.01497%. Error correction model result shows that short-term and long-term deviation in the previous level can be adjusted by 11% in the subsequent nine periods. Among the variables that affect housing prices, the GDP per capita has the most significant effect size. This thesis seeks to offer its findings that strongly suggest that policy makers need to pay close attention to the effect of the GDP per capita on housing prices and thus provide policies that adopt in various time horizons.