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A Theoretic Approach to China's Housing Market Boom and Down Payment Loans

Man Xu () and Qing Shi ()
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Man Xu: Shenzhen University
Qing Shi: Shenzhen University

Annals of Economics and Finance, 2018, vol. 19, issue 1, 265-278

Abstract: In this paper, we theoretically model the dynamic credit-financed real estate market, from a micro point of view, to show how the interaction between expectation of higher house price and down payment loan (DPL), even without changes in economic fundamentals, could result in price boom. Further, we find that the elastic house supply, due to developers timing the market, could add to the problem. Our model offers a good interpretation to the 2015 house price boom witnessed in China. Also, we dig into the potential consequences of the real estate boom and corresponding policy implications.

Keywords: House price; Moral hazard; Financial accelerator (search for similar items in EconPapers)
JEL-codes: D11 D82 G10 (search for similar items in EconPapers)
Date: 2018
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