Determinants and Sustainability of House Prices: The Case of Shanghai, China

Abstract

Recent housing policies include measures for home purchase control and shanty town redevelopment. This study proposes sustainable pricing, in that the long-run equilibrium price is determined by the fundamentals of house prices. We argue that changes in CPI might have led to rapidly growing house prices and rather high price levels. We investigate the long-run or short-run impacts of new commodity housing completions, transacted square meters of commodity housing, and CPI for house prices in Shanghai. We adopt monthly data for the period of 2005-2010. We test for unit roots using both the ADF and PP techniques and structural breaks using both the Zivot-Andrews (Model B) and Perron (Model C) methods. Considering Cheung-Lai and Reinsel-Ahn finite-sample corrections, the results suggest a long-run equilibrium. Housing completions negatively impact house prices in the short run. A positive volume-price relationship is suggested. Housing sales affect house prices in the short run but not vice versa. Hence, the empirical evidence supports the search model. In addition, CPI is strongly exogenous with respect to the long-run relationship and thus is a long-term determinant of house prices. CPI also positively and drastically influences house prices in the short run. Therefore, a reduction in inflation rate could stabilize house prices, increasing the chances of sustainable prices in the future.

Do Urban Rail Transit Facilities Affect Housing Prices? Evidence from China

“…Meanwhile, land price, as the cost proxy, shows strong impact on housing prices, which supports the view that cost drives housing prices [9,29,30]. Theses findings are consistent with the view that economic fundamentals are the major driving factors in determining housing prices [31][32][33][34]. Second, the coefficient on population is significant and presents the expected sign, which indicates that the demographic factors play an important role in forming housing price bubbles.…”

“…The model also suggests that the lagged housing price can be served as an important factor in determining housing price. Zou and Chau [31] claim that the consumer price index (CPI) is a long-term determinant of house prices. At the national level, business cycles, industrial production levels and employment rates are also the main factors which contribute to the change in housing prices [32][33][34].…”

Detecting the Spatially Non-Stationary Relationships between Housing Price and Its Determinants in China: Guide for Housing Market Sustainability

“…Table 1 shows considerable variations for the same variable across different studies. Zou and Chau [25] investigated the impacts of inflation rate on housing price in Shanghai based on the monthly data for the period of 2005-2010 and found a positive and slight relationship. Zhang et al [26] divided the 70 large and medium-sized cities in China into three tiers based on key factors (i.e., transportation system, infrastructure construction, economic environment, and cultural significance), and then empirically studied the relationship between housing price and macroeconomy.…”

Are They Neck and Neck in the Affordable Housing Policies? A Cross Case Comparison of Three Metropolitan Cities in China

“…While some huge strides have been made in promoting affordable housing and reducing housing costs for underprivileged families, there are still a variety of risks and local concerns related to cost-benefit arguments for these enormous projects, such as segregation and issues of criminality when lower-income families move into local communities [18].…”

“…In China, significant changes have taken place in the urban housing system since the early 1990s, and market-oriented housing reforms have improved both quality and living space for urban residents. On the other hand, the marketization of the housing system has engendered a real-estate boom, leading to dramatic housing-price inflation, a booming job market, and a lack of housing affordability [17,18].…”