Assessing the effects of housing market shocks on output: the case of South Africa

This paper aims to assess the effects of housing market shocks on real output in South Africa, by focusing on the real private consumption channel.

It measures housing market shocks as non-monetary housing shocks, uses a data set covering the period 1969Q4-2014Q4 and uses the agnostic identification procedure.

The paper finds that 20 per cent of the variation in house prices is explained by these shocks. The paper also finds that the effects of housing demand shocks on real private consumption are short-lived and generate a transitory real output response. Overall, housing demand shocks have managed to explain nearly 13 per cent and 14 per cent of the variation in real private consumption and real output respectively, over 20-quarters ahead forecast revision.

This finding suggests that shocks emanating from the housing market in the country are essential and should be considered when making macroeconomic policy decisions.

None of the existing studies, to our knowledge, have empirically assessed the effects of housing market shocks on real output directly. This paper attempts to contribute to the literature by assessing the direct impact of housing market shocks on the real output, using South Africa as a case study.