Housing prices and population dynamics in urban China

Abstract

In this study, a dynamic stochastic general equilibrium (DSGE) model is used to investigate the influence of population on housing price dynamics in urban China. The contribution of population growth to the housing price trend and the contribution of population shocks to housing price fluctuations are quantitatively measured. The empirical results indicate that the ongoing policy to control the population size in large cities in China can decrease the growth rate of housing prices by 0.49% every year, which accounts for 1/10 of the total housing price trend. Furthermore, this policy cannot stabilize housing prices because population shocks have negligible effects on the housing price cycle. Housing technology shocks and housing preference shocks are responsible for most of the housing price fluctuations.