Residential investments and house prices in Denmark

Equations for residential investments and house prices are established for use in an aggregate quarterly model of the Danish economy. The Johansen VAR procedure for multivariate cointegration analysis is used to scrutinize the data for correlations, after which single-equation methods are applied. It is argued that house prices do not adjust instantaneously and that investments are affected by the relation between the stock of houses and income as well as being affected by the relation of house prices to the costs of construction. There is also evidence of credit rationing. The applied user cost rate is nominal, and the influence from the expected change of house prices is not identified.