Home • PRRES Inc. Journal • Read the Journal

Forecasting Residential Rents: The Case of Auckland, New Zealand

Author/s: Christopher Farhi, James Young

Date Published: 1/01/2010

Published in: Volume 16 - 2010 Issue 2 (pages 207 - 220)

Abstract

A large number of studies have examined the price dynamics of housing markets and the comparative forecasting ability of alternative methodological frameworks. However, there has been relatively little work that focuses on forecasting residential rents. This paper uses two alternative methodological frameworks to forecast residential rents in Auckland, New Zealand from the early 1990’s onwards; namely a fundamental variable based Ordinary Least Squares (OLS) model and a univariate Auto Regressive Integrated Moving Average (ARIMA) approach. The results indicate that the simple ARIMA is superior in forecasting residential rents. This suggests that the fundamental variable specification may be useful in estimating turning points in rental movements, but that the simple autoregressive framework is more accurate in predicting rent levels. This is thought to be due to the heterogeneous profile of residential investors and key behavioural issues, such as myopic expectations surrounding returns that surround small-scale non-institutional investors dominating the residential rental market.

Download Full Article

Download the Full Article PDF

14445921.2010.11104302.pdf 14445921.2010.11104302.pdf (144kB)

Keywords

Forecasting - Models - New Zealand - Residential Rents

References

  • Blackley,D. M. and Follain, J. R. (1996), In Search of Empirical Evidence That Links Rent and User Cost. Regional Science and Urban Economics, 26, 3–4, 409–431.
  • Brooks, C. (2003), Introductory Econometrics for Finance, Cambridge University Press, p. 280.
  • Brown, J., Song, H. and McGillivray, A. (1997), Forecasting UK House Prices: A Time Varying Coefficient Approach. Economic Modelling, 14, 529–548.
  • Case, K. E. and Shiller, R. J. (2003), Is There a Bubble in the Housing Market? Brookings Papers on Economic Activity, 2, 299–362.
  • Crawford, G. and Franatoni, M. (2003), Assessing the Forecasting Performance of Regime-Switching, ARIMA and GARCH Models of House Prices. Real Estate Economics, 31(2), 223–243.
  • Department of Building and Housing, New Zealand (2008), Disclaimer, copyright and use of Market Rent Data. Retrieved September 2, 2008, fromhtt/www. dbh. govt. nz/market-rent-statisticalterms
  • DiPasquale, D. and Wheaton, W. (1992), The Markets for Real Estate Assets and Space: A Conceptual Framework. Journal of the American Real Estate and Urban Economics Association, 20(1), 181–197.
  • DTZ Research (2006), CHRANZ - The Future of Home Ownership and the Role of the Private Rental Market in the Auckland Region. Retrieved September 2, 2008, from http://www.chranz.co.nz/pdfs/future-of-home-ownership-and-the-role-of-the-private-rentalmarket-in-auckland.pdf
  • Glaeser, E. and Gyourko, J. (2005), Urban Decline and Durable Housing, Journal of Political Economy, 113, 345–375.
  • Guirguis, H. S., Giannikos, C. I. and Anderson, R. I. (2005), The US Housing Market: Asset Pricing Forecasts using Time-varying Coefficients, Journal of Real Estate Finance and Economics, 30, 33–53.
  • Hargreaves, B. (2008), What Do Rents Tell Us About House Prices? International Journal of Housing Markets and Analysis, 1(1), 7–18.
  • Inland Revenue-IRD (2009), Rental Income (Guide IR264), Wellington, NZ.
  • Investment Property Databank-IPD (2009), IPD Index Guide, London.
  • Kim, K. H. and Shu, S. H. (1993), Speculation and Price Bubbles in the Korean and Japanese Real Estate Markets, Journal of Real Estate Finance and Economics, 6, 73–88.
  • Malpezzi, S. and Wachter, S. M. (2005), The Role of Speculation in Real Estate Cycles, Journal of Real Estate Literature, 13, 143–166.
  • National Council of Real Estate Investment Fiduciaries-NCREIF (2009), User Guide - National Property Index.
  • Potepan, M. (1996), Explaining Intermetropolitan Variation in Housing Prices, Rents and Land Prices. Real Estate Economics, 24(2), 219–245.
  • Rehm, M. and Filippova, O. (2008), The Impact of Geographically Defined School Zones On House Prices in New Zealand, International Journal of Housing Markets and Analysis, 1(4), 313–336.
  • Reserve Bank of New Zealand (2008), Historical Fixed-term Mortgage Rates. Retrieved August 20, 2008, from http://www.rbnz.govt.nz/
  • Scheinkman, J. and Xiong,W. (2003), Overconfidence and Speculative Bubbles, Journal of Political Economy, 111, 1183–1219.
  • Seiler. M. J., Seiler, V. L., Traub, S. and Harrison, D. (2008). Regret Aversion and False Reference Points in Residential Real Estate. Journal of Real Estate Research, 30(4), 461–474.
  • Statistics New Zealand (2008A), Quarterly Employment Survey - Technical Notes. Retrieved August 30, 2008, fromhttp://www.stats.govt.nz/
  • Statistics New Zealand (2008B) Information about International Travel and Migration. Retrieved August 30, 2008, from http://www2.stats.govt.nz/
  • Stevenson, S. and Young, J. (2007), Forecasting Housing Supply: Empirical Evidence from the Irish Market. European Journal of Housing Policy, 7(1), 1–17.
  • Quotable Value, Ltd. (2008), Quotable Value New Zealand House Price Index.