The Sensitivity Of House Price To Interest Rate Based On The Land Supply Policy Elasticity

Recently, together with the housing price rising in our country, the housing price in Kunming is also caught its higher and higher, year by year. The topic about the housing price is now paid more attention than that in the pas, especially, the housing market adjusted until 2014. When we reviewed all kinds of reasonable explanations on the rising house pricing, many researchers and market viewers took the long-run low interest rate as one of these reasons. Although, many papers on empirical research pointed that the housing price is negatively related with interest rate, however, Since 2010, some papers showed that the influence of interest rate changes on the housing price is much less than that predicted by the standard cost model. In order to explain this phenomenon, the researchers provided three possible reasons:first, the increasing land supply elasticity (therefore housing supply) policy will reduce the effects of demand side variables on the housing price, such as interest rate; second, the high risk premium for long-term mortgages rate possibly makes the housing price less sensitive in the changes of interest rate; third, the long-run market interest rate cannot reflect the short-term fluctuation of interest rate. Among all these three explanations, the factor of land supply is very clear in China, due to the restrict land supply government which basically affects the housing supply as well as the housing price expectation.By focusing on the housing market in Kunming City, this paper is to research the land supply elasticity and housing price to interest rate changes. In concrete terms, due to the supply demand changes along with the interest rate, land supply may reduce the power of interest rare effects. Basically, the more elastic the supply is, the housing price sensitivity to interest rate will be weaker; on the contrary, when the land supply is inelastic, the housing price sensitivity will be stronger. In order to make sure this paper to be more precise, we design the model to describe the relationship between the housing price and interest rate, and take use of the empirical approach to test this model while provide to approaches to test the housing price sensitivity to interest rate. First, according to the different elasticity of land supply and different kinds of housing type, we apply the data to run the model, and find that the housing price sensitivity of large house to interest rate is higher than that of normal houses. This empirical result conforms to our expectation those large houses, such as villas, are often restricted in supplying of land. Second, the land is owned by the government in China, the sales in the land market actually are the lease of the right of use. Therefore, the elasticity of land supply is always affected by the policy of the government. Based on the above, this paper further takes the changes of land supply as the premise of empirical analysis and discusses the effect of land supply elasticity on the housing price sensitivity to interest rate. Finally, we find that the strict land supply policy leads to high sensitivity of housing price to interest rate, while inelasticity land supply leads to low sensitivity of housing price to the fluctuation of interest rate.