The impact of inflation on house prices in South Africa: effects of COVID-19

Abstract

This study investigates the impact of inflation on house prices in South Africa, with a particular focus on the effects of the COVID-19 pandemic. The research aims to elucidate the nature of the relationship between inflation and housing, and to determine how the pandemic has influenced this dynamic. Utilising monthly data from January 2010 to April 2022, the study employs Johansen cointegration and Granger causality tests to assess long-term and causal relationships, respectively. The findings confirm a positive long-term relationship between house prices and inflation, indicating that housing serves as an effective hedge against inflation. However, the results also reveal structural breaks in this relationship, with significant changes observed during the COVID-19 period. The Vector Error Correction Model (VECM) highlights short-run adjustments and the speed of return to equilibrium. This study provides valuable insights for investors and policymakers, demonstrating the resilience of housing investments during economic disruptions and underscoring the importance of considering regional and temporal factors in real estate investment strategies.