Exploring the Nexus Between the Land and Housing Markets in Saudi Arabia Amid Transformative Regulatory Reforms

Soaring housing prices worldwide are compromising housing affordability, potentially leading to significant economic, social, and health repercussions. Understanding the price discovery process within the real estate market is therefore crucial for policymakers. While the relationship between land and housing prices in urban residential markets has been widely examined in the literature, the results are often context-specific, leaving the question of whether the land market leads the housing market or vice versa open to debate. Saudi Arabia, with its rapidly growing real estate market, evolving demographics and urbanization trends, and transformative regulatory reforms, presents a compelling context for revisiting the land–housing nexus. This study examines the long-term relationship between land and housing markets and investigates the short-term price dynamics with the ultimate goal of understanding the price formation in the housing market. The study dataset comprises quarterly time-series price indices published by the General Authority for Statistics (GASTAT) in Saudi, representing the nation-wide price movements of residential lands and villas from 2014Q1 to 2025Q1. The study employs the Johansen cointegration method and the Granger causality testing. The results of cointegration analysis confirm a significant long-run equilibrium relationship between the two markets, while the error correction model reveals that both land and housing prices adjust to restore this equilibrium. Granger causality test results show a unidirectional relationship, where land prices predict future housing prices, consistent with the neoclassical rent theory. These findings reinforce the long-term, intrinsic link between land and housing markets observed in prior studies. The dynamics in the Saudi market are likely shaped by rapid urbanization that intensified speculation in the land market, and also the prevalence of self-building enabled by government-supported financing. This study underscores the importance of striking a delicate balance between supply and demand side policies in the real estate market while monitoring the impact of these policies on housing affordability.