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scussed topic and there is a variety of studies based on it. The number of academic papers has tripled since the beginning of the rapid increase in house prices in industrial countries in the late nineties. The most popular areas of research are forecasting house prices, testing for existence of speculative bubbles and testing for house market efficiency. According to the existing literature on the topic, the analysis could be divided into two major approaches. The first approach is more related to macroeconomic theory and tries to explain house price behaviour with the surrounding economic environment. The second approach shares ideas from the financial literature by examining the price-rent ratio similar to the price-dividend ratio. This approach applies present value models and Campbell, Davis, Gallin, Martin (2009) suggest that: 'understanding the underlying structural links between housing and financial markets is likely to be a fruitful area of future research'. The discussion in this section will be divided into two parts. Firstly I will discuss briefly literature based on global house market behaviour. In addition, the close economic and social behaviour in US and UK tend to reflect the nature of the housing market in the two countries and therefore the paper will mention some of the main contribution papers on the US property market. Finally, the rest of the section will concentrate only on the UK house market.

2.1The global and US house market.
Many papers on house price behaviour present more general approaches and try to explain the global movement of house markets with the help of panel data models. McQiunn and O'Reilly( ) use panel data analysis and propose a theoretical model where the behaviour of house prices is explained by changes in real personal income and interest rates. They apply panel econometric approaches and singly country approaches for 16 OECD countries for the period between 1980 and 2005. Using co-integration analysis their results support the existence of a long-run relationship between house prices and the fundamental factors. The study also found significant short-run coefficients of adjustment and reversion to fundamentals.

Beginning with one of the early studies on house prices, Poterba (1984) develops a dynamic model for house prices and economic factors in the US housing market. The results obtained from the analysis suggest that the decrease in mortgage rates and the rising inflation in the US are the main reason for the 30 per cent increase in properties in the seventies. The paper managed to partially provide a framework of the equilibrium but issues such as risk in investment and tax treatment were ignored. Case and Shiller (1989) are some of the pioneer works on the topic of house prices. Their work was based on time-series regional analysis of the US house market efficiency. The paper suggests that there is a significant persistency in changes in house prices. In addition, the results state that forecasting citywide indexes tend to be highly influenced by noise [3] . However, the paper fails to measure the return on housing accurately, based on the difference in quality in rent indexes. Moreover, any attempts to explain any tax effect runs into difficulties and some of their finding could not be applied in several regions in US. Case and Shiller (1989) has a significant contribution to the early studies of the topic and has been cited by many research pape