HOUSE PRICE DETERMINANTS IN THE REPUBLIC OF CROATIA AND POTENTIAL EFFECTS OF HOUSING MARKET LIBERALIZATION

The paper analyses house price developments during 2000-2006 period in the selected EU member states and Croatia. The analysis assesses the effect of EU joining on house prices in new member states. The results indicate that housing in Croatia and Slovenia is on average more expansive when compared with the rest of the new member states, while the effect of joining on house prices is ambiguous. Johansen cointegration method and error correction method is estimated in order to determine long- and short-run elasticities of house prices in Croatia. The results suggest that long-run income elasticity of house prices is quite high – three times higher than the supply side elasticity. In the long run house prices also respond to changes in infl ation and interest rates. In the short run credits to households, demographic developments and infl ation affect house prices the most. If Croatian joining the Union causes higher disposable income or positive expectations of future income, house prices in Croatia might rise as a consequence.