Identify the equilibrium of residential construction output : a vector error correction model approach

Purpose - Due to the complicated nature of houses, the driving factors of the residential construction output can be investigated from different perspectives of interests. However, little research has provided an insight of the trend of the residential construction output from a cross-disciplinary perspective. The purpose of this paper is to identify the long-run equilibrium types of residential construction output, including external equilibrium, solo-market equilibrium and dual-market equilibrium. Design/methodology/approach - A vector error correction model is applied into longitudinal data in the eight Australian states and territories to overview the regional variations of the residential construction output. Findings - The empirical results show that the equilibrium of regional residential construction outputs in New South Wales and Victoria are determined by the external factors; the equilibrium in Western Australia is dominated by the construction market; and the equilibriums in the other five states and territories are influenced by both construction and house markets. Research limitations/implications - The simplified approach may overlook the detailed explanation of the external factors, such as regional population, economy, policy and so forth. Given this limitation, future studies can introduce the correspondingly variables as per research interests. Originality/value - Implementing the existing research into residential construction output and house supply, this research provides a simplified approach that demonstrates the linkage between construction and real estate sectors to identify the long-run equilibriums across regions. The underlying research sheds light in delivering inter-disciplinary research into the residential construction output.