House Prices, (Un)Affordability and Systemic Risk

Pavlidis, Efthymios and Paya, Ivan and Skouralis, Alexandros (2021) House Prices, (Un)Affordability and Systemic Risk. New Zealand Economic Papers, 55 (1). pp. 105-123.

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This is the first paper to examine the role of the real estate sector and housing unaffordability in the determination of systemic risk. We measure the systemic risk of the UK by employing the ΔCoVaR method developed by Adrian and Brunnermeier [(2016). CoVaR. American Economic Review, 106(7), 1705–1741] and we explore both its cross-sectional and time series behaviour. Regarding the former, we show that when the real estate sector is under distress the tail risk of the entire financial system increases significantly. With respect to the latter, the findings of our dynamic model suggest that sustainable house prices positively contribute to the stability of the financial sector; whilst house price exuberance and rapid increases in housing unaffordability amplify systemic risk. Finally, we examine the conjecture that the banking sector comprises a transmission channel from the housing market to systemic risk. Our empirical results are in line with this argument and highlight the key role of housing unaffordability.

Item Type:
Journal Article
Journal or Publication Title:
New Zealand Economic Papers
Additional Information:
This is an Accepted Manuscript of an article published by Taylor & Francis in New Zealand Economic Papers on 29 Jan 2020, available online:
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Deposited On:
07 Feb 2020 16:20
Last Modified:
16 Mar 2024 00:55