The Dynamic Behaviour of Italian Real Estate Market

The aim of this study is to investigate the fundamental factors on housing prices in Italy. We have examined how quickly and strongly housing prices react to changes in these fundamentals. Knowledge of the most important variables that can affect housing prices is a good starting point for land policy or allocation of property rights. The integration of the information in public databases represents a clear goal but we can not ignore the under-utilization of the Italian available data. In the present study we have used a Vector Autoregressive (VAR) model on a sample at a regional level related to the period between 2004 and 2009, to allow analysis of the determinants underlying the housing values. This technique also allows to estimate, by introducing appropriate dummy variables in the model, the impact of a particular legislation focused to increasing the market transparency. This study, innovative on the Italian scene, showed a powerful impact on the real estate prices in the short run and no statistically significant effect of the interest mortgage rate. We especially tried to test whether these reactions changed after Italy adopted a new fiscal transparency system in 2006. We found that the main fundamental explanatory variables are household disposable income, new-build supply, housing units sold, unemployment rate and, according to literature, land prices. Among these factors, the most important one is land price, especially enhanced after the adoption of the new fiscal system in 2006.

Nicola Lazzari, Piermassimo Pavese