Addressing the macroeconomic and hedonic determinants of housing prices in Beijing Metropolitan Area, China

Abstract

This paper examined both the macroeconomic and hedonic determinants of housing prices in Beijing. The vector autoregression (VAR) model was used to explain the dynamic impacts of macroeconomic indicators on housing prices, and the geographical weighted regression (GWR) model was used to reveal the spatial variations in the effects of hedonic attributes on housing prices. The VAR results suggest that shocks to the macroeconomic indicators produce different dynamic changes in housing prices. Both an increase in the money supply and a decrease in the mortgage rates lead a rise in housing prices in the long term. Therefore, monetary policies and mortgage rates could be used as long-term financial tools to regulate the dynamics of housing prices. The GWR results show that the effects of hedonic attributes vary spatially. The size of a house has a negative impact on housing prices, especially in the downtown areas. The age of a house also has a negative impact on housing prices, especially in the suburbs. The effect of the number of bedrooms changes from positive in the downtown areas to negative in the suburbs. Furthermore, convenient accessibilities to critical amenities such as commercial centers, metro stations and high-quality schools contribute greatly to high housing prices in the downtown areas. The hedonic analysis of housing prices provides great implications for forming policy on urban planning, building design and public services construction. The core problem concerning urban planning, building design and public services construction in Beijing is the mismatch between working and living spaces. Therefore, relevant policy makings should focus on reducing the mismatch between working and living spaces, which is conductive to alleviating the spatial imbalance between housing supply and demand, narrowing the development gap within the city, and solving the urban diseases. Therefore, one important policy suggestion is that urban planning and public services construction should be upgraded to introduce more governmental offices, job opportunities, high-quality schools, commercial facilities and infrastructures into the suburbs. Another important policy suggestion is that the design for the floor area ratio and internal structures of new residential buildings should be planned to accommodate more residents and form better living environment in the downtown areas. Those suggestions can provide some guidance for solving urban problems in China and in other countries.