Effect of macroeconomic variables on prices of residential real estate properties in Kenya

Abstract

Housing wealth is an important determinant of consumption and saving behavior of households and is often correlated with savings and better overall financial management. A family’s investment decision in housing may have profound implications for all those within it and for the economy at large. The main aim of this study was to investigate empirically the effect of macroeconomic variables on the prices of residential real estate property in Kenya. The specific objectives of the study included: to determine the effects of lending rates on prices of residential real estate property in Kenya; to establish how rate of unemployment affects prices of residential real estate property in Kenya; to assess the effect of GDP growth rate on the prices of residential real estate property in Kenya, and; to determine effect of real inflation rate on the prices of residential real estate property in Kenya. The researcher employed descriptive research design. The current study employed descriptive statistics, Pearson’s correlation analysis and ordinary least squares regression model. Data presentation after the regression and correlation analysis was through tables. Study results reveal that commercial banks’ lending rates had a significant negative effect on housing price index. Unemployment was a significant predictor of residential housing prices. Unemployment rate had a significant positive effect on residential housing price index. Further findings from the study revealed that real GDP had a significant positive effect on residential housing prices in Kenya. Lastly, findings on the effect of inflation on prices of residential houses indicated that inflation has a significant positive influence on residential housing prices. The following recommendations are made after considering the study findings. First, the housing sector therefore needs some fiscal and policy measures to ensure that price movements reflect the economic situation of the country. Secondly, increase in interest rates should be managed though effective monetary and fiscal policies by the CBK. Lastly, in sustaining economic growth, policies should be put in place to control unemployment and inflation to a sustainable level.