Inflation and Real Returns on Local Housing Markets in Poland – Empirical Relationship

Abstract The common belief that real estate investments are an inflation hedge has been repeatedly challenged by scientific research. It was found that this issue requires in-depth research. Individual researchers have expanded their research to include various specific themes. However, there has been no research focused on the empirical relationship between the inflation rate and the real return on housing market investments. This study aimed to examine this relationship in detail within the framework of the five research questions formulated. Therefore, the article addresses this issue, considering different investment horizons (from 1 to 15 years) and 16 local housing markets in Poland. The research period covered was from 3Q 2006 to 4Q 2024. Based on hedonic price indices of 1m², the moving observation window method was used to obtain time series of real returns on local markets. Then, linear correlation and determination coefficients were calculated, and appropriate statistical tests were applied. It was found that: 1) the examined relationship was heterogenous, and dependent of the investment horizonas well as inflation regime; 2) the extent to which the CPI explained real return volatility was diverse; 3) it is not possible to identify a threshold (maximum) CPI for which real return remained non-negative; 4) for most investment horizons, the median CPI in periods when real return was positive did not differ significantly from the median CPI in periods when real return was negative; 5) for most local markets, the average real return in a high-inflation regime was significantly higher than in a low-inflation regime.