Category ECON - News

Research in housing economics needs a boost at Danish universities according to Danish strategic foundation Realdania. The Danish foundation has just granted DKK 1,750,000 to the School of Economics and Management at Aarhus University.

The recent housing bubble in residential markets and the financial crisis have clearly demonstrated the crucial influence of housing markets on society in general. This is why Realdania now strengthens research in housing economics by establishing a Knowledge Center for Housing Economics in collaboration with Danish universities. The centre will initiate a number of activities during the period 2009 to 2012 and thereby aims to provide a better understanding of some of the major issues and challenges currently facing the Danish housing market.

The grant of DKK 1,750,000 to the School of Economics and Management at Aarhus University is earmarked for a PhD programme within this particular field of economics.

Housing economy put into focus
”There is a strong need for research-based knowledge on a number of issues related to the property price bubble, which caused the recent financial recession. Economists were not sufficiently skilled to forecast the sharp rises in housing prices”, says Head of Secretariat Curt Liliegreen of Centre for Housing Economics at Realdania.

Realdania provides a strong contribution to Danish housing economy with the establishment of Knowledge Center for Housing Economics. The new research centre will provide better insight into a number of issues related to Danish housing economics, but is also intended to boost recruitment of housing economists into academia. The centre is created in response to the financial crisis, and Professor Torben M. Andersen at the School of Economics and Management has been appointed to serve as one of the members of the Advisory Board of the new centre.

”Research in housing economics has received only little attention in Denmark, and there is a strong need to strengthen this particular research field,” says Professor Torben M. Andersen.

Crucial to understand housing market mechanisms
According to Professor Torben M Andersen, the development in the residential property market was - shortly before the financial crisis - generally characterized by rising prices in combination with major geographical disparities. The violent rise in housing prices in general could clearly not be explained solely by the prevailing funding models at the time in the Danish housing market, and this trend was consequently referred to as a so-called “property bubble”.

”We need to get a much deeper understanding of the mechanisms that influence price formation in the housing market; it is particularly crucial for future economic policy reforms,” says Professor Torben M. Andersen.

Both theoretical and empirical methods of analysis required
The funding provided by Realdania will go to thorough investigation of a number of theoretical and empirical methods of analysis applied for forecasting price formation in the housing market.

The challenges in regard to the theoretical methods mainly concern modelling of how expectations may influence price formation in the housing market, but it will also be a challenging task to develop more disaggregated models of priced formation since this will allow further exploration of geographic differences and the effects that these variations may have.

”Development of much better empirical models for price formation is certainly one of our challenges. This is essential because the housing market forms part of macroeconomic models, such as SMEC and ADAM. It is well-documented that the housing market is influenced by the general economic development in society, yet the housing market also strongly influences the general development. It is therefore crucial to extend the existing financial tool box by adding improved macroeconomic models specifically developed for the housing market,” concludes Professor Torben M. Andersen.