The Great Housing Boom of China

FRB of St. Louis Working Paper No. 2014-022A

59 Pages Posted: 24 Aug 2014

See all articles by Kaiji Chen

Kaiji Chen

Emory University - Department of Economics; Federal Reserve Bank of Atlanta

Yi Wen

Federal Reserve Bank of St. Louis - Research Department; Tsinghua University

Multiple version iconThere are 2 versions of this paper

Date Written: August 22, 2014

Abstract

This paper provides a theory to explain the paradoxical features of the great housing boom in China — the persistently faster-than-GDP housing price growth, exceptionally high capital returns, and excessive vacancy rates. The expectation that high capital returns driven mainly by resource reallocation are not sustainable in the long run can induce the very productive entrepreneurs to speculate in housing during economic transition. This creates a self-fulfilling growing housing bubble, which can create severe resource misallocation. A calibrated version of the theory accounts quantitatively for both the growth dynamics of house prices and other salient features of the recent Chinese experience.

Keywords: Housing Bubble, Resource Misallocation, Chinese Economy, Development, Economic Transition

JEL Classification: E22, E23, O11, O16, P23, P24, R31

Suggested Citation

Chen, Kaiji and Wen, Yi, The Great Housing Boom of China (August 22, 2014). FRB of St. Louis Working Paper No. 2014-022A, Available at SSRN: https://ssrn.com/abstract=2485543 or http://dx.doi.org/10.2139/ssrn.2485543

Kaiji Chen

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States

HOME PAGE: http://https://sites.google.com/site/chenkaiji/research

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Yi Wen (Contact Author)

Federal Reserve Bank of St. Louis - Research Department ( email )

411 Locust St
Saint Louis, MO 63011
United States
314-444-8559 (Phone)
314-444-8731 (Fax)

Tsinghua University ( email )

Beijing, 100084
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
140
Abstract Views
1,660
rank
88,491
PlumX Metrics