Effects of housing allowances on housing prices in Australia : a cointegration analysis

This paper investigates the impact of the housing allowance for first homebuyers provided by the Federal government, together with nominal interest rate and employment on housing prices in Australia using cointegration analysis and an error correction model. Granger causality is also tested. Results show that the growth rates in average house prices for established houses and for project homes are Granger caused jointly by employment growth and interest rate increases. The cointegration analysis shows that housing prices are positively aflected by falling interest rates and rising employment. The recent housing allowance is found to have a positive and significant effect on housing prices in Australia.