When Cointegration Misleads: Regional Evidence on Housing Price Determinants in China

Liping Gao, Ghislain N. Gueye, Hyeongwoo Kim () and Jisoo Son

No auwp2025-07, Auburn Economics Working Paper Series from Department of Economics, Auburn University

Abstract: Using data from 29 regional housing markets in China, this study examines the long-run relationships between housing prices and key macroeconomic variables. Conventional cointegration methods can be misleading, as estimated coefficients often contradict standard demand-supply theory even when statistical tests indicate cointegration. Among the variables, only real income consistently explains regional housing price dynamics, whereas real interest rates and building costs fail to do so consistently across markets. Region-specific models reveal substantial heterogeneity and are both statistically robust and economically meaningful. Panel cointegration tests that account for cross-sectional dependence fail to detect cointegration when such heterogeneity is ignored. These findings highlight the limitations of uniform national approaches and underscore the need for tailored, region-specific housing policies.

Keywords: Housing Market; Cointegration; Dynamic Ordinary Least Squares; Panel Cointegration Test with CSD; Disaggregated Regional Data (search for similar items in EconPapers)
JEL-codes: C51 E00 R30 (search for similar items in EconPapers)
Date: 2025-10
New Economics Papers: this item is included in nep-cna, nep-sea and nep-ure
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