Convergence and spillover of house prices in Chinese cities

Abstract

The issue of house price convergence in 34 Chinese cities is investigated. We augmented the convergence model with contemporaneous spatial dependence in house prices and found that price convergence and positive spatial spillover are both present. We explicitly addressed the endogeneity problem by introducing a Bayesian instrumental variable setup, which was estimated with particle filtering techniques. From a growth poles perspective, the empirical evidence indicates that the spread effect in regional house prices outweighs the backwash effect. The identified positive spatial spillover has two effects on the growth of house prices in Chinese cities. First, the spillover elevates the trajectories of the steady-state growth paths of house prices. Second, the spillover narrows the gaps between the growth paths of house prices in neighboring cities. Shocks to the socioeconomic variables of a city generate their own effects on domestic house prices that dominate the effects arising from cross-city price feedbacks, thus mitigating the prospect of level convergence. Our findings also suggest a collaborating role between time and spatial dependence parameters. The identification of inter-city spillover, which is a conditioning factor for regional house price convergence, offers implications to policies that are most likely to be effective in reducing regional disparity.

Detecting Intra-Urban Housing Market Spillover through a Spatial Markov Chain Model

“…From the perspective of spatial variation, an interesting finding from Table 5 is that probability of spillover transit-in, which is just the negative transit out probability, is decreased along with the direction from southeast to northwest in Beijing. This finding coincides with a fact that the northwest part of Beijing is much more well-developed in terms of the concentration of high-tech industry, educational resources, and the absolute value of housing prices (high); the increasing strength of spillover transit-in is then a reflection of the equalization effect of housing market spillover, as widely discussed in the literature [7].…”

“…The externalities and spillover effect in housing markets have attracted growing scholarly interest [1][2][3][4][5][6][7]. Extensive studies have been reported for the housing markets in the developed world [8][9][10][11], while developing countries have also begun to pay attention [7,[12][13][14][15]. Meen [16] provides convincing economic explanations for the driving forces of spillover and summarizes four major mechanisms by which the housing price spillover can occur: migration, equity transfer, spatial arbitrage, and spatial patterns.…”

Spatial Spillover of House Prices: An Empirical Study of the Yangtze Delta Urban Agglomeration in China

“…Middle-and small-sized cities nurture the most urbanization, and real estate development contributes significantly to urbanization [33,34]. Some studies have separated regional growth dynamics into 'spread' and 'backwash' effects, representing the positive or negative influence of growth in the core city on peripheral cities, respectively [35,36]. The Yangtze River Delta has been undergoing rapid urbanization.…”

House Price Convergence on the Primary and Secondary Markets: Evidence from Polish Provincial Capitals

“…A leading role in this matter seems to be played by research in the UK and USA (HOLMES, GRIMES 2008;HOLMES et al 2011;KIM, ROUS 2012;MONTAGNOLI, NAGAYASU 2015;HOLMES et al 2019). Moreover, there is a rapid growth in studies on the convergence of regional house prices in China (ZHANG, MORLEY 2014;MENG et al 2015;MAO 2016;CHOW et al 2016). Studies on house price convergence are very often completed by an analysis of the impact of fundamental economic factors on convergence club membership.…”