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