Spatio-Temporal Diffusion of Housing Prices in Iran

To understand the behavior of housing prices in the country it is necessary to investigate the spatial interactions of interconnected regional markets. The discussion on housing prices highlights the potential spatial heterogeneity and cross-sectional dependence in different regions. It is important to pay attention to the source of cross-sectional dependencies to better understand the dynamics of housing prices in different regions. Cross-sectional dependence can be caused either by the role of space in economic processes or by common shocks that affect the entire economy, such as the oil shock. Using a spatio-temporal housing price diffusion model, the study found that the Tehran region, as the center of economic development and oil revenues, was a dominant region, and that shocks to Tehran were propagated contemporaneously and spatially to other regions. The results show that in modeling the spatial diffusion of housing prices, financial proximity is more important than geographic proximity, and regions with stronger financial links with Tehran will be most affected by shocks to this region in the long run.