Housing Prices: Fueling or Crushing Economic Growth? - A Study on the Effect of Shocks of Housing Prices on GDP in Taiwan

The Taiwanese government has long regarded the real estate sector as a key driver of economic growth because of its perceived multiplier effects. However, rising housing prices and worsening affordability have raised concerns about whether the housing market contributes meaningfully to long-term economic development. This study re-examines the relationship between housing prices and the macroeconomy in Taiwan by using quarterly data from 2006Q1 to 2025Q3 within a vector error correction model framework. The results confirm the existence of long-run cointegration among housing prices, gross domestic product (GDP), construction activity, population, and inflation. Housing prices are found to be weakly exogenous, while GDP, construction activity, population, and inflation adjust to restore equilibrium following shocks. In the long run, housing prices are influenced by supply-side conditions, demand pressures, financial factors, and structural shocks such as the global financial crisis and COVID-19 pandemic. In the short run, housing price shocks exert limited effects on broader economic performance. Overall, the findings suggest that although the real estate sector is closely linked to macroeconomic conditions, its contribution to sustained economic growth is limited.