Analyzing the Determinants of Housing Prices in Tehran City

In this paper, the factors affecting house prices have been studied in Tehran during 1991-2007. After combining the parameters and variables, land prices, construction costs, interest rates, per capita residential buildings completed, money supply and the returns in alternative markets are considered as theoretical determinants of housing prices, in which their effects should be tested and measured. Besides these factors, a component of unobserved or implicit trend including technical performance, preferences and non-economic factors is considered in the model. In order to estimate the model, a structural time series is used. This model has the capability to specify the regression equation of state - space and Kalman filter algorithm and the maximum likelihood method to estimate unknown parameters. The results have reflected the negative impact of real interest rates, returns on alternative assets such as gold, foreign exchange, equities, per capita residential buildings completed and the positive impact of construction costs. But, M2 is weak and insignificant. Strong relationship between land prices and housing prices identified seem to bo a simultaneous movement of two variable rather than a causal relationship.