An Intra-City Analysis of House Price Convergence and Spatial Dependence

This paper seeks to test the intra-city convergence of house prices using the comprehensive suburban house price and census data for a key Australian city. It applies the regression-based β-convergence test combined with spatial econometric models to examine the conditional convergence of house prices across 300+ suburbs in the Melbourne metropolitan area. This paper finds evidence of house price convergence when the econometric model controls for spatial effects and a few other suburban characteristics, such as population size, economic profile, education and employment profile, and crime rate. However, the convergence rate is found to be decelerated in the post-GFC periods. The estimation results suggest a faster convergence rate for units/apartments than for freestanding houses. There is also evidence of spatial effects, implying that house price growth in Melbourne suburbs is spilling over into the neighboring suburbs. These findings are expected to shed new light on understanding the residential real estate market and price dynamics within a city in the context of a developed nation and help design relevant housing policies.