The Spatial Analysis About The Effect Of 35 Cities' House Prices On Economy Based On The Transmission Of Collateral Effect And Wealth Effect

Real estate is a crucial industry of national economy, plays an important role in the development of steel, cement and household appliances, the stability of finance industry, drives the update of resident consumption structure and improves life's qualification. Many economists think house prices play an important part during not only the boom cycle but also the recession cycle. Friedman's permanent income hypothesis shows house prices affect economy by the wealth effect. Recently some economists suggest the collateral effect of house prices, because housing wealth is easy to collateralize, the rising of house prices relax homeowner's borrowing constraints, increase their actual consumption, and boost economy growth. The rising of house prices also boost some businessmen's investment. Because businessmen are derived by profit, their enthusiasm of real estate's investment continues to go up. Real estate development investment in China is 4830 billion in 2010, and is 17.35 percent of fixed assets investment. Real estate investment generates 39.11 percent of the economy growth. At the same time charge for land user which government gains by selling land is an important part of financial revenue, so it could affect financial expenditure and GDP.Take shanghai for example, charge for land user is about 150 billion, which means 55 percent of local financial revenue and 9.4 percent of local GDP in 2010. According to these features, this article mainly discusses that house prices affect economy by consumption, investment and financial expenditure.Considering spatial relation among 35 cities in China and using spatial panel data model, I analysis how house prices affect economy in 35 cities of our country, (1)I study economy growth is affected by house prices, total retail sales of consumer goods, fixed investment and financial expenditure. (2) According to the definition of collateral effect and wealth effect of house prices, house prices are decomposed into predictable changes (collateral effect) and unpredictable changes (wealth effect). (3) Considering borrowing constraints in the model, I analysis whether the model shows some differences. (4) I separately consider that house prices affect economy in the long term and in the short term, this shows dynamic processes.At last, we make conclusions, firstly in the long term, house prices have significant effects on local GDP, but in the short term, house prices don't have significant effects on local GDP. When the government regulates house prices, both the long term effects and the short term effects should be considered. Secondly not only in the long term but also in the short term, the collateral effect of house prices is stronger than the wealth effect of house prices, in the short term the wealth effect of house prices is not significant to the economy growth. At present our government expands domestic demand and increases government spending in order to control house prices and maintain a steady economic growth, on the other hand, when we want to control precipitous rise of house prices, we should control unpredictable house prices effect on economy growth, related to the changes of consumer expectations...