Determinants of housing prices in metropolitan China: evidence from Beijing and Shanghai from 2005 to 2012

Abrams, BurtonWang, SiyanThis study investigates the determinants of housing prices in Chinese metropolitan cities Beijing and Shanghai from Jan, 2005 to Oct, 2012. The determinants include factors from monetary policy, land prices, the stock market, the real economy and purchase limitation policy. The methodology employs Johansen cointegration analysis, generalized forecast error variance decomposition (GFEVD) and generalized impulse response functions (GIRF) to vector error correction models (VECM). The study found that bank credits and the real economy significantly impacted housing prices. In contrast to prevailing beliefs, land prices had little impact on housing prices. The study also found that purchase-restriction policies had a significant effect on curbing housing price appreciation, while disposable income and interest rates had an insignificant impact on housing prices. These effects are of different magnitudes in the two cities due to differences in their policies. Finally, I conclude with a number of policy recommendations for developing a rational and healthy housing market in metropolitan China.University of Delaware, Department of EconomicsPh.D