How does tourism penetration affect house prices? Evidence from Crete, Greece

12 Jun 2018

This study examines the relationship between tourism penetration and house prices. We use a very touristic place, Crete which is a major Greek island, as a case study to test research hypotheses. With data from 2006 to 2012, we construct tourism indicators for the four prefectures of Crete. Then by using principal component analysis (PCA) we create a tourism penetration rate (TPR) for each prefecture and rank them in terms of tourism penetration. In the second stage of the analysis, we perform a hedonic house price regression analysis. We establish empirical findings that (i) the TPR of a prefecture has a significant effect on house prices of the prefecture and (ii) house prices are affected by the TPR of the neighboring prefectures, indicating statistically significant tourism spillover effects. The findings, although significant, show asymmetric effects that confirm both the impact of tourism penetration on house prices and the presence of spillover effects across Crete Island. Models are tested for robustness across several specifications. The analytical framework drawing from tourism and housing economics literature is repeatable across regions with a significant tourism sector.