Dynamic Connectedness Of Urban Housing Prices In China

Since the housing reform in 1998,housing prices in large and medium-sized cities have experienced several rounds of substantial increases,and rising housing prices have sparked public concerns about systemic risks in the real estate market.The core of systemic risk is contagion,in the context of housing financialization and the expectation of a long-term rise in housing prices,housing prices in many cities show synchronous movement.The linkage effect of inter-city housing prices means that the regulatory policies independently designed by local governments may bring about "unexpected" externalities,because strict regulation in a single city may lead investors to purchase houses in other areas with loose policies.As a result,the housing market regulation policy of a single city becomes ineffective within a specific area.Therefore,it is of great significance to accurately measure the inter-city housing prices connectedness and analyze the mechanism behind it.Theoretical research shows that housing prices connectedness can be explained from both visible and invisible mechanisms.The visible mechanism believes that housing prices among cities can be related due to the free flow of production factors.The invisible mechanism believes that house has dual attributes of consumption and investment,and housing prices between cities are easily affected by investors’psychological expectations and speculative behaviors and show synchronous movements.Moreover,China’s housing market is deeply regulated by the government,and the regulatory behavior can also affect the connectedness of inter-city housing prices.Compared to the rich discussion of visiable mechanisms,few literatures explore the role of investor behavior and government behavior.Based on the newly-built housing price in 70 large and medium-sized cities,this paper measures the dynamic connectedness of inter-city house prices in a high-dimensional system,and then explores the mechanism from the perspective of investor behavior and government behavior.First,using a large-scale time-varying parameter vector autoregression(TVP-VAR)model,this paper measures the dynamic linkage effect of housing prices in 70 large and medium-sized cities across the country in a high-dimensional system,and then further divides urban housing prices into positive and negative to examine the asymmetric effect of house price linkage.It is shown that the housing connectedness behaves cyclical trend,the connectedness in the boom period is generally higher,while the linkages of housing prices is more prone to sharp spikes in down periods.Moreover,there exists markedly temporal and spatial asymmetry in the housing spillovers at some specific sub-periods,that is,well-developed cities tend to become leaders in the upswing cycle whereas the spillover effects in some undeveloped cities ascend during the downward phase.Second,based on the perspective of investor behavior,the impact of investor attention on the linkages of inter-city housing prices is discussed.With the continuous deepening of housing capitalization,the housing products own financial attributes,and investor behavior plays an important role in housing prices.This paper investigates the effect of investor attention on intercity housing price linkages.Empirical analysis shows that investor attention is crucial to housing price connectedness,and the effects of investor attention appear to be more intensive during the active phase of real estate market than during the calm phase.Further mechanism analysis results show that investor attention plays a role of noise driver rather than value transmission in the process of promoting inter-city house price linkage.Third,this paper further explores the impact of housing regulation policies on the linkages of inter-city housing prices.Whether it is macro-level monetary policy or local government regulation on demand and supply,government behavior plays an important role in the movement of housing prices.This paper employs difference-in-differences model to discuss the influence of government regulatory policies on the linkages of housing prices.The results confirm that the purchase restriction policy contributes to the housing price spillovers,and the effect in coastal areas is stronger than that in inland areas.The house price spillovers caused by the purchase restriction policy will attenuate with the increase of geographical distance,and the purchase restriction policy in the second-tier cities will lead to stronger spillovers the second-tier and third-tier cities that have not implemented the purchase restriction.In addition to purchase restriction policy,land supply strategy and monetary policy have a significant impact on inter-city housing price spillovers.