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Housing Prices in Urban C hina as Determined by Demand and Supply
Author(s) -
Chow Gregory C.,
Niu Linlin
Publication year - 2015
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12080
Subject(s) - economics , price elasticity of supply , income elasticity of demand , price elasticity of demand , supply and demand , elasticity (physics) , stock (firearms) , wealth elasticity of demand , labour economics , microeconomics , monetary economics , mechanical engineering , materials science , engineering , composite material
Abstract This paper studies the demand for and supply of residential housing in urban C hina since the late 1980s when the urban housing market became commercialized. Using aggregated annual data from 1987 to 2012 in a simultaneous equations framework we show that the rapid increase in the urban residential housing price can be well explained by the forces of demand and supply, with income determining demand and cost of construction affecting supply. We find the income elasticity of demand for urban housing to be approximately 1, the price elasticity of demand to be approximately −1.1 and the price elasticity of supply of the total housing stock to be approximately 0.5. The resulting long‐run effect of income on urban housing prices in elasticity terms is approximately 0.7, because the increase in income has shifted the demand curve outward more rapidly than the supply curve.