Housing Markets in China and Policy Implications: Comovement or Ripple Effect

The overheated housing market has recently become a top priority of the Chinese authorities and whether the ripple effect exists is key to understanding this housing issue. The present paper uses a cointegration estimation technique for six first-tier Chinese cities during the 2003-2013 period to show that the comovements among housing prices in China are fully reflected in a long-run equilibrium. Using the Toda-Yamamoto causality test, the ripple effect is found to be characterized by a lead-lag relationship. More importantly, it is found that Beijing is the main source of housing price appreciation in China, and should be targeted as the regulatory object to efficiently resolve the troubles in this increasingly high housing-price era.