The Interdependence of Housing Market and Banking Sector in Croatia

  • Tamara SliškovićEmail author
  • Martina Nakić
  • Tomislav Sekur
Conference paper
Part of the Eurasian Studies in Business and Economics book series (EBES, volume 10/2)


The two-way causality between housing market and banking sector has been widely documented in housing economics literature. On the one hand, the volume of housing loans, interest rates and other terms of lending are often highlighted as significant determinants of demand for housing and therefore housing prices. On the other hand, variations in housing prices change the value of assets in banks’ balance sheets. This might influence their loan potential. The aim of the paper is to investigate the mentioned bidirectional relationship in the case of Croatia. The interdependence between housing market and banking sector is examined within Vector Autoregressive (VAR) model. Housing market is represented by housing prices and construction variables and banking sector by volume of housing loans and corresponding interest rates. The empirical analysis shows that the causal relationship in Croatia mainly goes from the banking sector to housing market. On the other hand, there is a weak evidence of reverse causality which largely depends on chosen housing price index. These results suggest that housing market in Croatia does not follow typical patterns implied by widely accepted theoretical models.


Housing market Housing prices Banking sector Housing loans VAR model 



This work has been fully supported by Croatian Science Foundation under the project 7031.


  1. Abelson, P., Joyeux, R., Milunovich, G., & Chung, D. (2005). Explaining house prices in Australia: 1970–2003. Economic Record, 81(8), 96–103.CrossRefGoogle Scholar
  2. Adams, Z., & Füss, R. (2010). Macroeconomic determinants of international housing markets. Journal of Housing Economics, 19(1), 38–50.CrossRefGoogle Scholar
  3. Apergis, N. (2003). Housing prices and macroeconomic factors: Prospects within the European Monetary Union. International Real Estate Review, 6(1), 63–74.Google Scholar
  4. Borio, C., & Lowe, P. (2002). Asset prices, financial and monetary stability: Exploring the nexus. BIS Working Papers No. 114.Google Scholar
  5. Collyns, C., & Senhadji, A. (2002). Lending booms, real estate bubbles and the Asian crisis. IMF Working Paper, No. WP/02/20.Google Scholar
  6. Croatian Bureau of Statistics. (2016). Accessed from
  7. Croatian National Bank Statistics. (2016). Accessed from
  8. DiPasquale, D., & Wheaton, W. (1992). The markets for real estate assets and space: A conceptual framework. Journal of the American Real Estate and Urban Economics Association, 20(1), 181–197.CrossRefGoogle Scholar
  9. DiPasquale, D., & Wheaton, W. (1996). Urban economics and real estate markets. Englewood Cliffs, NJ: Prentice Hall.Google Scholar
  10. Dumičić, K., Čeh Časni, A., & Šprajaček, P. (2012). The linkage between real estate prices and the macro-economy in Croatia: VAR approach. Croatian Operational Research Review (CRORR), 3, 289–299.Google Scholar
  11. Égert, B., & Mihaljek, D. (2007). Determinants of house prices in central and eastern Europe. BIS Working Papers, No. 236.Google Scholar
  12. Gerlach, S., & Peng, W. (2005). Bank lending and property prices in Hong Kong. Journal of Banking and Finance, 29, 461–481.CrossRefGoogle Scholar
  13. Goodhart, C. (1995). Price stability and financial fragility. In K. Sawamoto, Z. Nakajima, & H. Taguchi (Eds.), 1995. Financial stability in a changing environment. London: St. Martin’s Press.Google Scholar
  14. Goodhart, C., & Hofmann, B. (2007). House prices and the macroeconomy: Implications for banking and price stability. New York: Oxford University Press.Google Scholar
  15. Hlaváček, M., & Komárek, L. (2009). Property price determinants in the Czech regions. Financial stability report 2008/2009 (pp. 82–91). Czech National Bank.Google Scholar
  16. Kalra, S., Mihaljek, D., & Duenwald, C. (2000). Property price and speculative bubbles: Evidence from Hong Kong SAR. IMP Working Paper, No. WP/00/2.Google Scholar
  17. Koetter, M., & Poghosyan, T. (2010). Real estate prices and bank stability. Journal of Banking and Finance, 34(6), 1129–1138.CrossRefGoogle Scholar
  18. Lovrinčević, Ž., & Vizek, M. (2008). Determinante cijena nekretnina u Republici Hrvatskoj i potencijalni učinci liberalizacije tržišta nekretnina [House Price Determinants in the Republic of Croatia and Potential Effects of Housing Market Liberalization]. Ekonomski pregled, 59, 723–740.Google Scholar
  19. MacKinnon, J. G. (1996). Numerical distribution functions for unit root and cointegration tests. Journal of Applied Econometrics, 11, 601–618.CrossRefGoogle Scholar
  20. McQuinn, K., & O’Reilly, G. (2008). Assessing the role of income and interest rates in determining house prices. Economic Modelling, 25(3), 377–390.CrossRefGoogle Scholar
  21. Nikolić, I. (2015). Price determinants of newly built dwellings in Serbia. Industrija, 43(2), 105–116.CrossRefGoogle Scholar
  22. Oikarinen, E. (2009). Interaction between housing prices and household borrowing: The Finnish case. Journal of Banking and Finance, 33, 747–756.CrossRefGoogle Scholar
  23. Ojetunde, I. (2012). On the interaction between the Nigerian residential property market and the macroeconomy. Journal of Geography, Environment and Planning (JOGEP), 7(2). Ado-Ekiti, Nigeria: University of Ado-Ekiti. Available at SSRN. Accessed May 15, 2017, from
  24. Otrok, C., & Terrones, M. E. (2005). House prices, interest rates and macroeconomic fluctuations: International evidence. 2005 Conference: Housing, Mortgage Finance, and the Macroeconomy, Atlanta, USA, May 19–20, 2005. Federal Reserve Bank of Atlanta. Accessed May 5, 2016, from
  25. Pirounakis, N. G. (2013). Real estate economics: A point-to-point handbook. Oxon: Routledge.CrossRefGoogle Scholar
  26. Posedel, P., & Vizek, M. (2009). House price determinants in transition and EU-15 countries. Post-Communist Economies, 21(3), 327–343.CrossRefGoogle Scholar
  27. Sutton, G. (2002). Explaining changes in house prices. BIS Quarterly Review, September, 46–55.Google Scholar
  28. Tica, J. (2002). Tranzicija hrvatskog stambenog tržišta [Transition of the Croatian Housing market]. Zagreb: Politička kultura.Google Scholar
  29. Tsatsaronis, K., & Zhu, H. (2004). What drives housing price dynamics: Cross country evidence. BIS Quarterly Review, March, 65–78.Google Scholar
  30. Vizek, M. (2010). Short-run and long-run determinants of house prices in Eastern and Western European countries. Privredna kretanja i ekonomska politika, 125, 27–60.Google Scholar
  31. Zhu, H. (2005). The importance of property markets for monetary policy and financial stability. In Bank for International settlements: Real estate indicators and financial stability (Vol. 21, pp. 9–29).Google Scholar

Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  • Tamara Slišković
    • 1
    Email author
  • Martina Nakić
    • 2
  • Tomislav Sekur
    • 1
  1. 1.Faculty of Economics and Business, Department of Macroeconomics and Economic DevelopmentUniversity of ZagrebZagrebCroatia
  2. 2.Faculty of Economics and Business, Department of FinanceUniversity of ZagrebZagrebCroatia

Personalised recommendations