IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v7y2015i4p4524-4548d48282.html
   My bibliography  Save this article

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

Author

Listed:
  • Gao Lu Zou

    (Faculty of Tourism and Industrial Development, Chengdu University, Chengdu 610106, China)

  • Kwong Wing Chau

    (The Ronald Coase Centre for Property Rights Research, Faculty of Architecture, The University of Hong Kong, Hong Kong, 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.

Suggested Citation

  • Gao Lu Zou & Kwong Wing Chau, 2015. "Determinants and Sustainability of House Prices: The Case of Shanghai, China," Sustainability, MDPI, vol. 7(4), pages 1-25, April.
    • Handle: RePEc:gam:jsusta:v:7:y:2015:i:4:p:4524-4548:d:48282
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/7/4/4524/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/7/4/4524/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jack H. Rubens & Michael T. Bond & James R. Webb, 1989. "The Inflation-Hedging Effectiveness of Real Estate," Journal of Real Estate Research, American Real Estate Society, vol. 4(2), pages 45-56.
    2. Spulber, Daniel F., 1984. "Scale economies and existence of sustainable monopoly prices," Journal of Economic Theory, Elsevier, vol. 34(1), pages 149-163, October.
    3. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    4. Dusansky, Richard & Ingber, Melvin & Karatjas, Nicholas, 1981. "The impact of property taxation on housing values and rents," Journal of Urban Economics, Elsevier, vol. 10(2), pages 240-255, September.
    5. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    6. Sen, Amit, 2003. "On Unit-Root Tests When the Alternative Is a Trend-Break Stationary Process," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 174-184, January.
    7. Hort, Katinka, 1998. "The Determinants of Urban House Price Fluctuations in Sweden 1968-1994," Journal of Housing Economics, Elsevier, vol. 7(2), pages 93-120, June.
    8. anonymous, 1983. "The budget and macro-economic policy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 46, september.
    9. Oates, Wallace E, 1969. "The Effects of Property Taxes and Local Public Spending on Property Values: An Empirical Study of Tax Capitalization and the Tiebout Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 77(6), pages 957-971, Nov./Dec..
    10. Karl E. Case & Robert J. Shiller, 1988. "The behavior of home buyers in boom and post-boom markets," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 29-46.
    11. Ali Anari & James Kolari, 2002. "House Prices and Inflation," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 30(1), pages 67-84.
    12. Song Shi & Martin Young & Bob Hargreaves, 2010. "House Price-Volume Dynamics: Evidence from 12 Cities in New Zealand," Journal of Real Estate Research, American Real Estate Society, vol. 32(1), pages 75-100.
    13. Buckley, Robert & Ermisch, John, 1982. "Government Policy and House Prices in the United Kingdom: An Econometric Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 44(4), pages 273-304, November.
    14. Ball, Michael & Meen, Geoffrey & Nygaard, Christian, 2010. "Housing supply price elasticities revisited: Evidence from international, national, local and company data," Journal of Housing Economics, Elsevier, vol. 19(4), pages 255-268, December.
    15. anonymous, 1983. "International economic situation and outlook," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 46, january/f.
    16. Jeremy C. Stein, 1995. "Prices and Trading Volume in the Housing Market: A Model with Down-Payment Effects," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 379-406.
    17. Peter Fortura & Joseph Kushner, 1986. "Canadian Inter‐City House Price Differentials," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 14(4), pages 525-536, December.
    18. Lastrapes, William D., 2002. "The Real Price of Housing and Money Supply Shocks: Time Series Evidence and Theoretical Simulations," Journal of Housing Economics, Elsevier, vol. 11(1), pages 40-74, March.
    19. Cheung, Yin-Wong & Lai, Kon S, 1993. "Finite-Sample Sizes of Johansen's Likelihood Ration Tests for Conintegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(3), pages 313-328, August.
    20. Johansen, Soren, 1992. "Testing weak exogeneity and the order of cointegration in UK money demand data," Journal of Policy Modeling, Elsevier, vol. 14(3), pages 313-334, June.
    21. Currier, Kevin M., 1994. "Existence, uniqueness, and computation of sustainable prices," Mathematical Social Sciences, Elsevier, vol. 27(1), pages 105-109, February.
    22. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    23. David F. Hendry & Katarina Juselius, 2001. "Explaining Cointegration Analysis: Part II," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 75-120.
    24. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-618, Nov.-Dec..
    25. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    26. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
    27. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
    28. Jim Clayton & Greg MacKinnon & Liang Peng, 2008. "Time Variation of Liquidity in the Private Real Estate Market: An Empirical Investigation," Journal of Real Estate Research, American Real Estate Society, vol. 30(2), pages 125-160.
    29. Steven C. Bourassa & Patric H. Hendershott & James Murphy, 2001. "Further evidence on the existence of housing market bubbles," Journal of Property Research, Taylor & Francis Journals, vol. 18(1), pages 1-19.
    30. Granger, C. W. J., 1980. "Long memory relationships and the aggregation of dynamic models," Journal of Econometrics, Elsevier, vol. 14(2), pages 227-238, October.
    31. Glaeser, Edward L. & Gyourko, Joseph & Saiz, Albert, 2008. "Housing supply and housing bubbles," Journal of Urban Economics, Elsevier, vol. 64(2), pages 198-217, September.
    32. Mr. Bin Wang & Tao Sun, 2013. "How Effective are Macroprudential Policies in China?," IMF Working Papers 2013/075, International Monetary Fund.
    33. Abeysinghe, Tilak, 1994. "Deterministic seasonal models and spurious regressions," Journal of Econometrics, Elsevier, vol. 61(2), pages 259-272, April.
    34. C. Y. Yiu & K. F. Man & S. K. Wong, 2008. "Trading Volume and Price Dispersion in Housing Markets," Journal of Property Research, Taylor & Francis Journals, vol. 25(3), pages 203-219, December.
    35. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-472, August.
    36. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    37. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
    38. Huayi Yu, 2010. "China’s House Price: Affected by Economic Fundamentals or Real Estate Policy?," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 5(1), pages 25-51, March.
    39. Earl D. Benson & Julia L. Hansen & Arthur L. Schwartz, Jr. & Gregory T. Smersh, 1997. "The Influence of Canadian Investment on U.S. Residential Property Values," Journal of Real Estate Research, American Real Estate Society, vol. 13(3), pages 231-250.
    40. Ebrill, Liam P & Possen, Uri M, 1982. "Inflation and the Taxation of Equity in Corporations and Owner-Occupied Housing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(1), pages 33-47, February.
    41. Banerjee, Anindya & Lumsdaine, Robin L & Stock, James H, 1992. "Recursive and Sequential Tests of the Unit-Root and Trend-Break Hypotheses: Theory and International Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 271-287, July.
    42. Kenny, Geoff, 1999. "Modelling the demand and supply sides of the housing market: evidence from Ireland1," Economic Modelling, Elsevier, vol. 16(3), pages 389-409, August.
    43. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    44. Phillips, P C B, 1991. "Optimal Inference in Cointegrated Systems," Econometrica, Econometric Society, vol. 59(2), pages 283-306, March.
    45. anonymous, 1983. "Developments in the international economy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 46, july.
    46. Ronald W. Kaiser, 1997. "The Long Cycle of Real Estate," Journal of Real Estate Research, American Real Estate Society, vol. 14(3), pages 233-258.
    47. Hort, Katinka, 2000. "Prices and turnover in the market for owner-occupied homes," Regional Science and Urban Economics, Elsevier, vol. 30(1), pages 99-119, January.
    48. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-228, August.
    49. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
    50. James A. Berkovec & John L. Goodman, 1996. "Turnover as a Measure of Demand for Existing Homes," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(4), pages 421-440, December.
    51. Koivu, Tuuli, 2012. "Monetary policy, asset prices and consumption in China," Economic Systems, Elsevier, vol. 36(2), pages 307-325.
    52. Lin Wang, 2010. "Impact of Urban Rapid Transit on Residential Property Values," Chinese Economy, Taylor & Francis Journals, vol. 43(2), pages 33-52, March.
    53. Peter Abelson & Roselyne Joyeux & George Milunovich & Demi Chung, 2005. "Explaining House Prices in Australia: 1970–2003," The Economic Record, The Economic Society of Australia, vol. 81(s1), pages 96-103, August.
    54. anonymous, 1983. "New Zealand economic chronology 1982," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 46, january/f.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tomasz Witold Trojanowski & Pawel Tadeusz Kazibudzki, 2021. "Prospects and Constraints of Sustainable Marketing Mix Development for Poland’s High-Energy Consumer Goods," Energies, MDPI, vol. 14(24), pages 1-25, December.
    2. Xu Zhang & Xiaoxing Liu & Jianqin Hang & Dengbao Yao & Guangping Shi, 2016. "Do Urban Rail Transit Facilities Affect Housing Prices? Evidence from China," Sustainability, MDPI, vol. 8(4), pages 1-14, April.
    3. Can Li & Yu Meng & Yingkui Li & Jingfeng Ge & Chaoran Zhao, 2019. "Inter-Metropolitan Land-Price Characteristics and Patterns in the Beijing-Tianjin-Hebei Urban Agglomeration in China," Sustainability, MDPI, vol. 11(17), pages 1-29, August.
    4. Yongsheng Jiang & Dong Zhao & Andrew Sanderford & Jing Du, 2018. "Effects of Bank Lending on Urban Housing Prices for Sustainable Development: A Panel Analysis of Chinese Cities," Sustainability, MDPI, vol. 10(3), pages 1-16, February.
    5. Deng, Qiu Shi & Alvarado, Rafael & Cheng, Fang Nan & Cuesta, Lizeth & Wang, Chun Bao & Pinzón, Stefania, 2023. "Long-run mechanism for house price regulation in China: Real estate tax, monetary policy or macro-prudential policy?," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 174-186.
    6. Wei Wang & Yuzhe Wu, 2020. "Exploring the Coordination Mechanism for Public Housing Supply with Urban Growth Management: A Case Study of Chongqing, China," Sustainability, MDPI, vol. 12(10), pages 1-16, May.
    7. Ya Gao & Xiuting Li & Jichang Dong, 2019. "Does Housing Policy Sustainability Matter? Evidence from China," Sustainability, MDPI, vol. 11(17), pages 1-17, August.
    8. Lishan Xiao & Quanyi Qiu & Lijie Gao, 2016. "Chinese Housing Reform and Social Sustainability: Evidence from Post-Reform Home Ownership," Sustainability, MDPI, vol. 8(10), pages 1-14, October.
    9. Yii, Kwang-Jing & Tan, Chai-Thing & Ho, Wing-Ken & Kwan, Xiao-Hui & Nerissa, Feng-Ting Shim & Tan, Yan-Yi & Wong, Kar-Horn, 2022. "Land availability and housing price in China: Empirical evidence from nonlinear autoregressive distributed lag (NARDL)," Land Use Policy, Elsevier, vol. 113(C).
    10. Xiang Cai & Chin-Chang Tsai & Wei-Ning Wu, 2017. "Are They Neck and Neck in the Affordable Housing Policies? A Cross Case Comparison of Three Metropolitan Cities in China," Sustainability, MDPI, vol. 9(4), pages 1-16, April.
    11. Yanchuan Mou & Qingsong He & Bo Zhou, 2017. "Detecting the Spatially Non-Stationary Relationships between Housing Price and Its Determinants in China: Guide for Housing Market Sustainability," Sustainability, MDPI, vol. 9(10), pages 1-17, October.
    12. Shengfu Yang & Shougeng Hu & Weidong Li & Chuanrong Zhang & José A. Torres, 2017. "Spatiotemporal Effects of Main Impact Factors on Residential Land Price in Major Cities of China," Sustainability, MDPI, vol. 9(11), pages 1-16, November.
    13. Aliyu Ibrahim Saidu & Chunho Yeom, 2020. "Success Criteria Evaluation for a Sustainable and Affordable Housing Model: A Case for Improving Household Welfare in Nigeria Cities," Sustainability, MDPI, vol. 12(2), pages 1-16, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zou, Gao Lu, 2012. "The long-term relationships among China's energy consumption sources and adjustments to its renewable energy policy," Energy Policy, Elsevier, vol. 47(C), pages 456-467.
    2. Gaolu Zou & Kwong Wing Chau, 2020. "Effects of International Crude Oil Prices on Energy Consumption in China," Energies, MDPI, vol. 13(15), pages 1-17, July.
    3. K. W. Chau & Gaolu Zou, 2018. "Energy Prices, Real Estate Sales and Industrial Output in China," Energies, MDPI, vol. 11(7), pages 1-15, July.
    4. Gaolu Zou & K. W. Chau, 2019. "Long- and Short-Run Effects of Fuel Prices on Freight Transportation Volumes in Shanghai," Sustainability, MDPI, vol. 11(18), pages 1-12, September.
    5. John D. Levendis, 2018. "Time Series Econometrics," Springer Texts in Business and Economics, Springer, number 978-3-319-98282-3, August.
    6. De La Cruz Martinez, Justino, 1999. "Mexico's balance of payments and exchange rates: a cointegration analysis," The North American Journal of Economics and Finance, Elsevier, vol. 10(2), pages 401-421.
    7. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220, National Bureau of Economic Research, Inc.
    8. Rodríguez-Caballero, Carlos Vladimir & Ventosa-Santaulària, Daniel, 2017. "Energy-growth long-term relationship under structural breaks. Evidence from Canada, 17 Latin American economies and the USA," Energy Economics, Elsevier, vol. 61(C), pages 121-134.
    9. Brittle, Shane, 2009. "Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia," Economics Working Papers wp09-10, School of Economics, University of Wollongong, NSW, Australia.
    10. Levent KORAP, 2008. "Exchange Rate Determination Of Tl/Us$:A Co-Integration Approach," Istanbul University Econometrics and Statistics e-Journal, Department of Econometrics, Faculty of Economics, Istanbul University, vol. 7(1), pages 24-50, May.
    11. Norman J. Morin, 2006. "Likelihood ratio tests on cointegrating vectors, disequilibrium adjustment vectors, and their orthogonal complements," Finance and Economics Discussion Series 2006-21, Board of Governors of the Federal Reserve System (U.S.).
    12. N. Vijayamohanan Pillai, 2010. "Electricity Demand Analysis and Forecasting- The Tradition is Questioned," Working Papers id:2966, eSocialSciences.
    13. Javier Haulde & Morten Ørregaard Nielsen, 2022. "Fractional integration and cointegration," CREATES Research Papers 2022-02, Department of Economics and Business Economics, Aarhus University.
    14. Banerjee, Anindya & Urga, Giovanni, 2005. "Modelling structural breaks, long memory and stock market volatility: an overview," Journal of Econometrics, Elsevier, vol. 129(1-2), pages 1-34.
    15. Tang, Chor Foon & Tan, Eu Chye, 2015. "Does tourism effectively stimulate Malaysia's economic growth?," Tourism Management, Elsevier, vol. 46(C), pages 158-163.
    16. Chien-Chiang Lee & Chin-Yu Wang & Jhih-Hong Zeng, 2017. "Housing price–volume correlations and boom–bust cycles," Empirical Economics, Springer, vol. 52(4), pages 1423-1450, June.
    17. PHILIP E.T. LEWIS & GARRY A. MacDONALD, 1993. "Testing for Equilibrium in the Australian Wage Equation," The Economic Record, The Economic Society of Australia, vol. 69(3), pages 295-304, September.
    18. Alexander Schätz, 2010. "Macroeconomic Effects on Emerging Market Sector Indices," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 9(2), pages 131-169, August.
    19. Chien-Chung Nieh & Hwey-Yun Yau & Ken Hung & Hong-Kou Ou & Shine Hung, 2013. "Cointegration and causal relationships among steel prices of Mainland China, Taiwan, and USA in the presence of multiple structural changes," Empirical Economics, Springer, vol. 44(2), pages 545-561, April.
    20. Asai Manabu & Peiris Shelton & McAleer Michael & Allen David E., 2020. "Cointegrated Dynamics for a Generalized Long Memory Process: Application to Interest Rates," Journal of Time Series Econometrics, De Gruyter, vol. 12(1), pages 1-18, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:7:y:2015:i:4:p:4524-4548:d:48282. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.