| Abstract: | This study investigates the nexus between tourism development and house prices in the Republic of Cyprus over the period spanning from 2005Q1 to 2016Q4. Tourism indicators vis‐à‐vis tourism arrivals along with other explanatory variables (the domestic credit, the land area per person, and the consumer price index) are employed in a multivariate autoregressive distributed lag (ARDL)‐bound test model. The empirical results indicate a significant evidence of cointegration. Indicatively, an observed adjustment of about 44% from short‐run to long‐run implies that the model is not relatively slow to adjust to disequilibrium. Importantly, a percent increase in tourism arrivals is observed to cause a rise in house price by about 37%. Expectedly, it is statistically observed that as the land area per person decreases, it is accompanied by a hike in house price. Also, the impacts of domestic credit offered to private enterprises and the consumer price index are different from the results in previous studies. As a policy guide, the government of Cyprus and stakeholder in the tourism and housing sectors should outline a strategy that will ensure the social welfare of people such that housing availability is not hampered by tourism activities. |
