Revisiting the determinants of house prices in China’s megacities: Cross‐sectional heterogeneity, interdependencies and spillovers

Abstract

We revisit the determinants of house prices in China's megacities. Previous work on similar topics fails to account for the widespread cross-sectional heterogeneity and interdependencies, despite the importance of them. Using a PVAR estimated by the Bayesian method allowing for these features, we find each city is rather unique, especially on the extent to which local house prices are disturbed by external house price shocks. The spillovers may be partly related to the demand side before 2010, but seems more related to supply factors thereafter, due to the imposition of property purchase restrictions. The new evidence we establish therefore suggests that city-level stabilisation of house prices should fully respect local features, including how local markets respond to external disturbances.

State-Space Modeling of Housing Sentiment for Regressing Changes of Real Estate Prices Following Short-Term Control Policy in China

“…On the supply side, the post-control short-term policies are represented by restrictions in both purchase and sale. Thereafter, the main impact on the real estate supply and demand in the market has shifted from the demand side to the supply side [8].…”

“…Our results verified that the partial failure of implementation of short-term control policies was attributed to housing sentiment. Short-term control policies used to be analyzed for the impact on the real estate market from the perspective of elasticities of supply and demand [6][7][8]. Our study, however, expanded the objective of short-term regulation policy from the perspective of emotion to periodic changes in sentiments on real estate before and after the short-term regulation policy.…”

“…Since the 2010s, short-term real estate control measures have succeeded in limiting the rise in housing prices [1][2][3][4][5], which was attributed to the elasticity of the supply-and-demand relationship. From the perspective of elasticities in supply and demand, short-term regulatory policies were found to have a significant impact on the relationship between supply and demand [6][7][8]. In contrast, at least parts of short-term regulations rarely limit the full growth of real estate prices [7,[9][10][11][12], but it is hard to unravel the mechanism accounting for the failure of effects by the short-term control policy according to current evidence.…”