Do spatial effects drive house prices away from the long-run equilibrium?

Long-run equilibrium of house prices has been investigated by researchers in multiple countries. The identification of this equilibrium not only provides references against contemporary house price levels, but also contributes to creation of stable-development policies and healthy investment strategies. However, there is little research investigating the factors that drive house prices away from the long-run equilibrium.
Based on a framework of the conventional stationarity test process, this research develops a panel regression model and a spatial regression model to investigate the roles of spatial heterogeneity and correlations on house prices preceding the long-run equilibrium, respectively. Housing data generated from the capital cities in Australia are used to illustrate the models. Spatial effects can have a strong influence in the long-run performance of house prices, while the short-run performance of house prices is not influenced by the spatial effects.