House prices and tourism development in Cyprus: A contemporary perspective

• Author: Simplice A. Asongu,Uju V. Alola,Andrew A. Alola
• Date: 01 May 2020
• DOI: http://doi.org/10.1002/pa.2035
• Published date: 01 May 2020

ACADEMIC PAPER

House prices and tourism development in Cyprus: A

contemporary perspective

Andrew A. Alola

1,4

| Simplice A. Asongu

2

| Uju V. Alola

3,4

1

Department of Economics and Finance,

Faculty of Economics, Administrative and

Social Science, Istanbul Gelisim University,

Istanbul, Turkey

2

Economic Development Section, African

Governance and Development Institute,

Yaoundé, Cameroon

3

Department of Tourism Guidance, Faculty of

Economics, Administrative and Social Science,

Istanbul Gelisim University, Istanbul, Turkey

Correspondence

Andrew A. Alola, Department of Economics

and Finance, Faculty of Economics,

Administrative and Social Science, Istanbul

Gelisim University, Istanbul, Turkey.

Email: aadewale@gelisim.edu.tr

Present address

Andrew A. Alola, South Ural State University,

Chelyabinsk, Russia

Uju V. Alola, South Ural State University,

Chelyabinsk, Russia

This study investigates the nexus between tourism development and house prices

in the Republic of Cyprus over the period spanning from 2005Q1 to 2016Q4. Tour-

ism indicators vis-à-vis tourism arrivals along with other explanatory variables (the

domestic credit, the land area per person, and the consumer price index) are

employed in a multivariate autoregressive distributed lag (ARDL)-bound test model.

The empirical results indicate a significant evidence of cointegration. Indicatively, an

observed adjustment of about 44% from short-run to long-run implies that the

model is not relatively slow to adjust to disequilibrium. Importantly, a percent

increase in tourism arrivals is observed to cause a rise in house price by about 37%.

Expectedly, it is statistically observed that as the land area per person decreases, it

is accompanied by a hike in house price. Also, the impacts of domestic credit

offered to private enterprises and the consumer price index are different from the

results in previous studies. As a policy guide, the government of Cyprus and stake-

holder in the tourism and housing sectors should outline a strategy that will ensure

the social welfare of people such that housing availability is not hampered by tour-

ism activities.

JEL CLASSIFICATION

C22; O50; R31

1|INTRODUCTION

In reality, issues of health, food, and housing are importantly attrib-

uted to human basic needs. As echoed in the key message of the

World Bank on housing finance, “Housing plays a key socio-economic

role and represents the main wealth of the poor in most developing coun-

tries”(Housing Finance-World Bank, 2017). This message further

opined the importance of housing to human survival. The importance

of housing is not far from the main cause of the 2007–2008 global

financial crises which is traceable to the United States' housing market

negatively affecting housing and other human basic needs (Batuo,

Mlambo, & Asongu, 2018). Prior to the global financial crisis (GFC), a

substantial body of literature had documented the relationship

between house price and a handful of macroeconomic (Kishor &

Marfatia, 2017), financial (Aoki, Proudman, & Vlieghe, 2004; Estrella &

Mishkin, 1998), and socio-economic variables (Luttik, 2000). To men-

tion a few, population, dependency ratio, unemployment, income or

wage pressure, interest rate, mortgage rate, construction cost, mar-

riage or marital status, and migration patterns, are among others, vari-

ables that have been linked with house prices. For instance,

population is reportedly vital to the dynamics of the housing prices

(United Nations, [UN], 2017). The UN report indicates that about

83 million people are currently being added to the global population

annually, and such a trend projects an increase in the world population

from 7.6 billion people in 2017 to 8.6 billion, 9.8 billion, and 11.2 bil-

lion in 2030, 2050, and 2100, respectively. Subsequently, it also

maintained that in 2017, 962 million people were 60 years old and

above. This demography is forecasted to increase to 2.1 billion and

3.1 billion in 2050 and 2100, respectively. The statistical implication

among other things supports the perception of the challenge of rapid

urbanization and aging, resulting to an immense pressure on housing

delivery systems.

Moreover, the population-induced factor that is being associated

with the housing market includes migration and tourism

Received: 5 September 2019 Revised: 15 September 2019 Accepted: 7 October 2019

DOI: 10.1002/pa.2035

J Public Affairs. 2019;e2035. wileyonlinelibrary.com/journal/pa © 2019 John Wiley & Sons, Ltd. 1of11

https://doi.org/10.1002/pa.2035

Andrew A. Alola

1

| Simplice A. Asongu

2

| Uju V. Alola

3

J Public Affairs. 2020;20:e2035. wileyonlinelibrary.com/journal/pa © 2019 John Wiley & Sons, Ltd. 1 of 11

https://doi.org/10.1002/pa.2035