Transmission Effect Of Housing Price On Wage And Interest Rate

Recent years,real estate market in China has been booming dramatically while the real economy is going downhill.The very different status quo of above sectors,are they connected? Labor endowment plays both elementary and critical role in economic growth and development.So does capital element.Thus,we build a theoretical model to look into the effect of housing price on labor and capital allocation.The mathematical model implies that,with a higher housing price,real estate sector has an impact of re-allocating labor and capital resources.In other words,housing prices will push up both labor and capital costs.On top of that,the two resources are prone to flow from manufacturing sector to real estate sector.Followed by an empirical analysis,we use city-level panel data of China to investigate the relationship between different types of property prices and wage,a proxy measure of labor cost.And we also study the relationship of house prices,real estate investment,non real estate(NRE)investment and interest rate.First,the results show that the effect of house prices on wage depends on the types of property.Compared with house prices of residential property,the prices of office buildings and retail shops hardly affect labor wage in terms of statistical significance.Second,housing prices exert a less effect on wage than GDP per capita as well as the development of service sector.However,bear in mind that real estate sector is categorized as one of tertiary industries.Its irrational booming still possible to drive wage high by increasing the prices of non-tradable commodities.Third,as for capital factor endowment,we find a higher house price,along with rapid expansion of real estate investment,tends to lift interest rates up,which will have an adverse effect on NRE investment.Notwithstanding that an increase in real estate investment could give a rise to raising more funds in its related industries in the short run.From a longterm perspective,it will squeeze out investment in other sectors like manufacturing industry.Based on the analyses above,the relationship between real estate boom and resources reallocation should be taken seriously and carefully to avoid threatening the whole economy.