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.
Highlights
In 2000–2008, the average house price in Chinese cities increased by 84% (Figure 1) [1]
The PP tests rejected the null hypothesis of a unit root in first difference at the 1% level for the four variables: HOUSE PRICE, COMPLETION, sales volume (SALES), and consumer price index (CPI) (Table 3)
The augmented Dickey-Fuller (ADF) tests rejected the null hypothesis of a unit root in first difference at the 1% level for COMPLETION and SALES, 5% level for CPI, and 10% level for HOUSE PRICE
Summary
In 2000–2008, the average house price in Chinese cities increased by 84% (Figure 1) [1]. In. Shanghai, during 2001 2008, the prices of new commodity and existing housing properties grew by. In 2006 2008, these prices rose by 9.3% and 10.9% (Table 1) [2]. This may suggest a house price bubble in Shanghai, e.g., [3]. House price levels have significantly increased given the high ratio of house price to family income [4]. Additional factors significantly influencing the changes in house prices are real estate investment, per capita disposable income, and employment opportunities [6]. Urban rapid transit has a significant incremental impact on the prices of houses located near transport stations [7]
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