β-convergence and the Cyclical Dynamics of UK Regional House Prices

Abstract

The potential convergence of regional house prices in the UK is examined. In contrast to the existing literature which focuses upon stochastic convergence, the present paper considers alternative forms of convergence. Using a method based upon conditional probabilities of high and low growth rates, tests are employed to detect β-convergence in UK regional house prices. Importantly, given the suggested differences in regional house price dynamics over the course of the cycle in the housing market, β-convergence is considered not only over the full sample of observations available, but over cyclical sub-samples also. Interestingly, while convergence is not detected over the whole sample available, it is observed over the housing market cycle, with overwhelming evidence of convergence detected particularly during the downturn. These findings, supported by results for σ-convergence, show that failure to detect convergence may be due to its episodic nature being masked when arbitrarily defined sample periods are considered.