Introduction
Various dimensions of housing heterogeneity have gained relative popularity in recent years. The most essential aspect of housing heterogeneity is a set of differences including technical, governance, socio-economic, and ecological differences of each residential unit. The origin of these distinctions is an objective matter that is regarded as an essential aspect of the research framework, but is frequently overlooked in managerial decision-making. In the scientific community, the social, technical, and economic dimensions have received the most attention, whereas the role of the behavioral characteristics of investors in housing prices has received scant attention. Focusing on the aspects of behavioral economics theory, the present study analyzes the heterogeneity of the behavior of housing investors, as well as the internal and external factors influencing housing prices and their effects on inflation in Iran from 2011 to 2020.
Methodology
The primary objective of this article is to evaluate the effects of heterogeneous behavior of housing market investors on housing prices and the effects of heterogeneous behavior of housing market investors on inflation via housing prices. The following equation is used to determine the price of a house:
POH=f₁(A₁. A₂.A₃) (1)
In Equation 1, POH represents the expense of housing, A₁ is a vector of exogenous factors influencing housing prices, A₂ is a vector of exogenous factors influencing housing prices, and A₃ is a vector of investor behavioral variables in the housing sector.
Overoptimism and herding effect are considered to be two behavioral variables of housing sector investors:
HBH_t=1T_t=1^T|e_t-e_m| (2)
OCH_t=Q_tS_t (3)
In equation 2, HBH_t represents the herding effect of investors in housing sector, e_t represents the housing return at time t, and e_m represents the average return of housing market. In equation 3, OCH_t represents overoptimism, Q_t represents the number of building permits issued, and S_t represents the quantity of residential unit investment.
Inflation is also viewed as a function of housing prices and other macroeconomic factors according to the equation below:
INFR=f₂(POH.B) (4)
In equation 5, INFR represents inflation rate and B is a vector of independent variables influencing inflation.
Findings
During the period 2011-2020, land price, population growth rate, liquidity, and herding effect had a positive significant effect on housing prices in Iran, according to estimates. Conversely, the number of residential units constructed and the exchange rate has had a negative significant impact on housing prices in Iran; while, the variables of interest rate, per capita income growth rate, and overoptimism had nonsignificant effect on housing prices. Regarding the factors influencing inflation, the data also indicates that the housing price, exchange rate, and liquidity had a positive significant effect on Iran’s inflation rate between 2011 and 2020. In contrast, population growth and per capita income growth had a significant negative impact on inflation; while the interest rate had a negative but nonsignificant impact on Iran’s inflation rate over the period under review. Due to the nonsignificance of the effect of overoptimism on housing prices in the seemingly unrelated regression (SUR) model, it can be concluded that housing prices do not mediate the effect of overoptimism on inflation. Due to the significance of herding effect on housing prices, however, the mediating effect of housing prices and herding effect on inflation is confirmed.
Discussion and Conclusion
In this article, SUR was used to analyze the effects of behavioral and non-behavioral factors on housing prices and inflation in Iran from 2011 to 2020. The following results were obtained:
• An increase of 1% in internal factors affecting housing prices, such as land prices, the number of completed construction units, population growth rate, and per capita income, have resulted in respective increases of 1.19, -1.36, 0.59, and -0.015 in the Iranian housing costs.
• An increase of 1% in the behavioral factor of herding effect has resulted in a change of 0.77% in housing prices in Iran.
• A 1% increase in housing prices, currency prices, and liquidity has resulted in an inflation rate increase of 0.18%, 0.92%, and 0.17% in Iran, respectively. A 1% increase in the population growth rate and the per capita income growth rate has caused a decrease of 1.53% and 0.141% in inflation rate, respectively.
Through housing prices, the behavior of investors in the housing sector can indirectly influence the inflation rate. Considering the positive impacts of herding effect on housing prices and housing prices on inflation rate, it can be concluded that herding effect has a positive impact on inflation rate.
In accordance with the stated findings, the following policy recommendations are provided to prevent the rise in housing prices and inflation:
Considering the positive impact of herding effect on the housing price and, consequently, the inflation rate, it is necessary to take measures to control and reduce emotional and irrational behavior of investors in housing sector. Since the internal factors of land price and population growth rate have a positive effect on the housing price, while the number of completed construction units and per capita income have a negative effect on the housing price, it is recommended that government provide unused governmental lands and remove obstacles to complete half-finished buildings that have been halted for legal reasons, and assist in supplying more housing to reduce its price. In addition, government should help control housing demand and reduce demand pressure by adopting population control policies and establishing suitable working, health, and educational conditions for the villagers, to diminish immigration level.