Commodity house prices

•Commodity prices affect the local house prices in Australia and New Zealand.•A geographically hierarchical empirical model is built.•Commodity prices influence local house prices directly and also indirectly.•The impacts of commodity price changes are analogous to “income shocks”.•House price responses to commodity price movements differ across regions.

This paper studies how commodity price movements have affected the local house prices in commodity-dependent economies, Australia and New Zealand. We build a geographically hierarchical empirical model and find that the commodity prices influence local house prices directly and also indirectly through macroeconomic variables. The impacts of commodity price changes are analogous to “income shocks” rather than “cost shocks”. Regional heterogeneity is also observed in terms of differential dynamic responses of local house prices to energy versus non-energy commodity price movements. The results are robust to alternative approaches. Directions for future research are also discussed.