Research Discussion Paper – RDP 10 Investment in Dwellings: An Econometric Approach


The aim of this paper is to develop an equation to explain quarterly movements in gross private fixed capital expenditure on dwellings in Australia. This equation is to be part of a quarterly model of the Australian economy [33].

The only published attempts to construct an equation to explain private investment in dwellings in Australia are those by Kmenta [26] and Duloy [15]. But there are many studies for other countries. Most of these studies develop a behavioural equation for dwelling commencements and then explain investment in dwellings by a distributed lag relationship on commencements but some studies follow a more direct approach and develop a behavioural equation for investment in dwellings. The two-stage approach is used in the Michigan [40], Office of Business Economics [27], Brookings [14] and Federal Reserve – M. I. T. [13] models of the United States economy, the RDX1 model of the Canadian economy [22] and in the studies by Maisel [29] and Spark s[38][39]. The direct approach is used in the London Business School model of the United Kingdom economy [2], the Liu [28] and Wharton [17] models of the United States economy and in the studies by Evans [16], Klein [25] and Grebler and Maisel [19]. The latter approach is used in this paper although the elements of the two-stage approach are used in deriving model B in section 2.

The plan of the paper is as follows. The theoretical framework is presented in section 2 and the definitions of the variables and sources of the data are given in section 3. The empirical results are reported in section 4 and some conclusions are drawn in section 5.