Evaluating Housing Bubbles in China

This study evaluates housing bubbles in China using the right-tailed ADF test, a method which enables the detection of housing bubble origination and collapse. Based on monthly data of 35 major cities during the period 2006-2014, empirical results show that housing bubbles are most significant in two periods: 2009-2010 and 2012-2013. The former is likely caused by the central government’s 4-Trillion Fiscal Stimulus Package; the latter is likely caused by local governments’ retreatment from restrictive housing policies. It is worth noting that in the period 2010-2012, most cities did not have signs of housing bubbles, indicating that the most effective policy to curb housing price escalation in China so far is restrictive purchase (xiangou). Findings are muli-facets: A major implication is that current housing bubbles are mainly generated by homeowners with more than one house. Thus establishment of a nationwide homeownership information system is necessary to monitor and cool down overheated property market.

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