the price of housing services in china chao yue tian
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The Price of Housing Services in China
Chao Yue Tian
Organization of the Talk
• Background
• Literature and Purpose of the Paper
• Model and Empirical Strategy
• Results and Conclusions
Beijing
-0.02
0
0.02
0.04
0.06
0.08
0.1
1996 1998 2000 2002 2004 2006
House Price
Land Price
Tianjin
-0.02
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
1996 1998 2000 2002 2004 2006
House Price
Land Price
Shanghai
-0.2
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
1996 1998 2000 2002 2004 2006
House Price
Land Price
Concerns
• Housing Affordability
• Income Inequality
• Social Stability
• Bubbles in House Price
HOUSE PRICE APPRECIATION IN US AND 3 US CITIES
0
5
10
15
20
25
30
35
1998 1999 2000 2001 2003 2004 2005
United States
New York
Los Angeles
Washington, DC
House Price Appreication in Chinese and US Cities
-0.1
-0.05
0
0.05
0.1
0.15
0.2
0.25
0.3
1998 1999 2000 2001 2002 2003 2004 2005
Beijing Tianjin Shanghai
New York Los Angeles Washington, DC
Previous Research
• Changes in House Price Reflect Fundamentals– Wu (2002) – Shen and Liu (2004)
• Do Not– Li (2007)
Advantage of Data
• Land Price– Fong and Liu (2006)– Gao and Mao (2003)– Song and Gao (2007)– Yan (2006)– Kuang (2005)
Model--Demand
NYP NYD lnlnln*lnQ 1D
Model--Supply
lnlnlnQ 2S PS
Model--Market Clearing
SQlnlnQD
Model--Reduced Form
lnlnlnlnP 1 NY NY
DS
Y
YDS
N
N
Data
• Chinese Statistical Year Books—ChinaDataOnline
• Time Series, 1998-2005
• Cross Sectional, Beijing, Tianjin, and Shanghai
• HPI, LPI, Wage, CPI, Pop, Inc, i
Panel Data Estimation
• Heterogeneity– One Way Fixed Effect– Random Effect
Panel Data Method
ittiit ittiitNitY NY lnlnlnlnP 1it
ititNitY NY lnlnlnlnPit
Empirical Model -- Reduced Form in Percentage
ititNitY NY %%%%Pit
Breusch-Pagan/Cook-Weisberg Test and Ramsey RESET Test for
Heteroskedasticity
Models Breusch-Pagan / Cook-Weisberg test Ramsey RESET test
Prob > chi2 Prob > F
resi1 0.4302 0.3929
resi2 0.344 0.57
resi3 0.2032 0.1845
resi4 0.439 0.0924
Result
• OLS Favored
• Population and Income Wrong Sign and Insignificant
• Correlation between Land Price and House Price High
Disadvantage of Paper
• Small Sample– Reliability of Estimates– Could Hardly Account for Structural Breaks
Conclusion
• Our Results Confirm with More Recent Results on the Movement of House Price Appreciation
• Economic Fundamentals Do NOT Explain House Price Appreciations as Theory Predicted
• High Correlation between Land Price and House Price Indicates Developers Dominate Market
Suggestions
• Government Could Provide More Land to the Market
• Encourage Competition among Developers
• Raise Land Price
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