Energy Prices and Housing Property Demand in Shanghai, China

This study investigates long-run relations among the prices of fuel and power, sales of new residential constructions, and total industrial output in Shanghai, China. Structural break and unit root tests show that these three variables each contain a unit root. Allowing for finite-sample biases, a trivariate cointegration system is suggested. Both housing property demand and industrial output are weakly exogenous for the equilibrium system, but energy prices are not. Therefore, the results imply that housing demand influences energy prices in the long run, but not vice versa. By decreasing the demand (or expected demand) for residential property, municipal authorities could expect to restrain or reduce energy use and prices, thereby facilitating the restructuring of the economy into a resource-saving one.