Study Of China’s Housing Market Price From The Perspective Of Macroeconomy

Since the market oriented reform of urban housing industry of China in1998,Chinese real estate industry has become more and more mature after development formore than a dozen years, and grown to be an major engine of economic growth forChina. Meanwhile, the market oriented reform has led to a marketed housing pricewhich is no longer controled by the government and SOEs, the housing price has keptgrowing since1998, and experienced an unprecedented nationally surge after2004,this triggered a number of economic and social problems, especially concerns aboutChina’s asset bubble on housing and risk in the financial system, as well asdissatisfaction on affordability difficulty for home buyers resulted by roaring housingprices, etc.. The housing market problem with prices as the core in contemporaryChina is particularly important given the fact that the world economy is still instagnation, Europe and America’s resurgence are slow and the demand for Chinesegoods is shrinking. There is no exaggeration for us to say that the housing priceproblem is one of the most important factors that matters for China’s macroeconomicperformance and social stability.Therefore, the realistic background of China’s macroeconomy and societyrequires researchers to do a lot of scientific, reasonable, detailed and profound studyabout the housing market of China, in particular, we need to interprete the currentsituation of China’s housing market, especially where are we, is there bubble in thehousing price and how big if there is? Explain the past housing market developmentprocess, especially how we got here, why the unprecedented housing price surgeappeared after2004? Make reasonable expectation and forecast about the housingmarket in the foreseeable future, especially the possible housing demand contractionand the corresponding effect on China’s macroeconomy.Based on the consideration above, this thesis attempts to investigate the housingprice problems in China’s housing market in-depth from the perspective ofmacroeconomy, the paper is organized as follow: Chapter1is the introduction, I briefly discuss the important role of housingmarket to national economy and household’s living, introduce the past developmentprocess of China’s housing market, as well as the organization and main content ofthe thesis.Chapter2is study about measuring housing market bubble, I derive a newequilibrium price-rent ratio formula by constructing a buy/rent household lifetimeportfolio choice model under the buy-rent no arbitrage condition. The equilibriumprice-rent ratio formula provides a powerful tool and standard to evaluate the housingprice bubble, it can also be used to analyze the effect of factors such as risk-free rate,mortgage rate, maintenance cost, rent inflation rate, maintenance cost inflation rate onthe housing price-rent ratio. Employing empirical data, I find that the bubble in Chinamay be still moderate, in some local markets like Beijing, Shanghai, Shenzhen,Hangzhou etc. there are certain level of bubble, but may not as big as alleged by somescholars and media.Chapter3is to analyze the determinant and influencing factors of the housingprice growth rate in the past ten years, in this chapter I intend to answer the questionabout what factors contributed to the fluctuation and surge of China’s housing price,in particular, the factors that may have effect on the skyrocketing housing price after2004. To do this, I firstly build a model with household’s overlapping generationframework (OLG) and Cournot monopolistic competition market structure, to set upthe theoretical background of our discussion, then employing a30provincial paneldataset of China, I try to investigate the factors that affected the fluctuation ofhousing price appreciation emperically, especially factors from demand side such asdemographic shock (baby boom), loan interest rate, the monetization degree ofeconomy, etc. I prove for the first time that the demographic shock resulted from thebaby boom in1980s contributed a very significant amout to the nationally housingprice appreciation after2004, other factors such as the monetization degree ofeconomy helped too. I also show that the view about land price and urbanizationprocess maybe doubtful, no significant evidence were found that they contributed alot to drive housing price up.Chapter4is to analyze the housing market from the perspective of housing supply, though the housing price appreciation of China from2004appears to benational, there is differences in performance between local markets, different citieshave different degrees of price appreciation, a huge housing price growth was takenplace in cities like Beijing and Ningbo, whereas cities like Taiyuan only experiencedacceptable mild housing price appreciation, I try to answer this phenomenon from theview of housing supply. To do this, nationally and city-specific housing supplyelasticities were estimated, and it can be seen that comparing to America, China’shousing supply is more inelastic; Then, I find that economic activity on per unit land,developable land ratio, and government regulation represented by government’smanipulation on land grant method have significant explanatory power on supplyelasticity; In the end, I show that the city-specific supply elasticity estimated have astrong effect on the long-run housing price growth rate of cities, the intuition behindis that facing a same positive demand shock, city with a bigger supply elasticitywould have more potential to increase housing supply so that the housing priceappreciation could be maintained to be relatively less, this reminds us that ifgovernment intend to deflate housing price, then policies promoting housing supplywould be more helpful that suppressing demand, suppressing demand policy woulddrive the market to a low level equilibrium, and maybe harmful to household welfareand macroeconomy.Chapter5is the conclusion of the paper, besides the conclusion, I indicate theinsufficiency in the research, and give suggestion for the possible subsequentresearch.