Assymetric Adjustment and Intervention in the UK Housing Market

The aim of this study is to determine whether house prices in the UK react differently to negative and positive shocks using the asymmetric cointegration approach. The asymmetric adjustments from disequilibrium are likely to exist following different shocks due to the collective reactions of policymakers, homeowners, mortgage lenders and investors. Using the MTAR model we test whether prices move back to equilibrium more quickly after a fall than a rise, potentially as a result of intervention by the authorities who are more concerned by falls due to the potentially damaging affects this can have for the whole economy. The empirical results reveal the existence of an asymmetric long-run relationship between house prices and housing market fundamentals, where negative shocks to the housing market cause convergence between the variables and positive shocks result in divergence. The results also suggest this varies across housing types, although there is little evidence that housing follows a political housing cycle.