The great housing boom of China

Kaiji Chen and Yi Wen

No 2014-22, Working Papers from Federal Reserve Bank of St. Louis

Abstract: China?s housing prices have been growing nearly twice as fast as national income over the past decade, despite a high vacancy rate and a high rate of return to capital. This paper interprets China?s housing boom as a rational bubble emerging naturally from its economic transition. The bubble arises because high capital returns driven by resource reallocation are not sustainable in the long run. Rational expectations of a strong future demand for alternative stores of value can thus induce currently productive agents to speculate in the housing market. Our model can quantitatively account for China?s paradoxical housing boom.

Keywords: Housing Bubble; Resource Misallocation; Chinese Economy; Development; economic transition (search for similar items in EconPapers)
JEL-codes: E22 E23 O11 O16 P23 P24 R31 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2014-08-22
New Economics Papers: this item is included in nep-cna, nep-dge, nep-mac, nep-tra and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Journal Article: The Great Housing Boom of China (2017)
Working Paper: The great housing boom of China (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2014-022

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DOI: 10.20955/wp.2014.022

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