Correlation between Wages and House Prices: an Analysis of Regional Differences in the Czech Republic

Background: The real estate market in the Czech Republic exhibits significant differences among regions, especially in terms of the influence of economic factors such as wages on property prices. Wages are one of the key determinants of house prices, but their influence may vary across regions and over time. It is important to further understand the dynamics between wages and house prices at the regional level. Objective: This study seeks to investigate whether and how the impact of wages on house prices varies among regions and how it changes over time. Methods: The fixed effects panel regression with interaction terms was used to account for regional and time effects. The model includes lagged house price values to better capture market dynamics over time. Interaction terms between wages and regions allow for the detection of region-specific effects. The Newey-West correction was used to control for heteroskedasticity and autocorrelation. Results: In some regions, such as Prague, factors other than wages (e.g. lack of supply and high demand) may play a more significant role. The analysis also confirmed that house prices exhibit time inertia, which means that past price developments have an impact on the current market. Recommendation: It is recommended to focus on promoting affordable housing in regions with high prices and on investment opportunities in emerging regions where wages and house prices are growing more steadily. Practical relevance: This study provides insights into regional differences in the Czech Republic's housing market. These insights are valuable for regional housing and economic development strategies Policymakers can use this knowledge to better respond to affordable housing challenges. Originality/value: This study provides an original analysis of the impact of wages on house prices, with an emphasis on regional specificities and time trends, allowing for a deeper understanding of regional dynamics in the housing market in the Czech Republic. This analysis provides useful insights for future research and for practical applications in real estate market and regional policy decision-making.