Six types of government policies and housing prices in China

Abstract

This paper investigates six different types of government policies that are frequently used to stabilize the Chinese housing market. Particularly, it identifies which type of government policy has a greater influence on the dynamics of housing prices in China. For these purposes, we develop a dynamic stochastic general equilibrium model, including special aspects of the Chinese housing market such as land ownership and government policy mechanisms. According to the findings, among all the government policies of interest, land policy plays the most important role in influencing housing prices. Although the monetary policy appears to achieve its desired effect over the short term, its overall impact on housing prices is less significant than that of the land policy. Moreover, fiscal policies, including housing subsidy, housing tax, and government expenditure policies, are far less influential than the land policy, while the role of loan-to-value-based macro-prudential policy is borderline negligible. Collectively, these principal findings, which hold for various robustness checks, highlight the importance of the land policy in the Chinese housing market.