Land and House Price Measurement in China
We provide the first multi-city, constant quality land price index for 35 major markets in China. While there is meaningful heterogeneity in land price growth across cities, on average the last nine years have seen land values skyrocket in many markets, not just those on or near the coast. The typical market has experienced double-digit compound average annual growth in real, constant-quality land values. The 2009-2010 stimulus period typically saw large surges in prices. Three notable characteristics about the land value appreciation series are their strong mean reversion at annual frequencies, the strong common factor in their movement, and their very high volatility. Quantities, not just prices, have been sharply increasing in recent years. The typical amount of space supplied via land auctions in our 35 city sample has doubled since 2008. Some local political economy traits such as the time the local Chinese Communist Party leader has been in office are correlated with land supply volume.
We also investigate the quality of the two most prominent house price indexes in China, and conclude that a traditional hedonic index more accurately reflects how house prices have changed over time in eight major markets in China. Repeat sales indexes have become standard in many countries, but they are not as useful in emerging markets such as China because the bulk of the housing stock is relatively new and has not traded multiple times. A hedonic index shows much higher house price growth over time that do officially published series for the eight markets examined.
This paper was prepared for the Reserve Bank of Australia and Bank for International Settlements conference on "Property Markets and Financial Stability" in August of 2012. We appreciate the comments of Haibin Zhu and other conference participants on an earlier draft, and gratefully acknowledge Jia He and Mingying Xu for excellent research assistance. Gyourko thanks the Global Research Initiatives Project of the Wharton School, University of Pennsylvania for financial support. Deng and Wu thank the Institute of Real Estate Studies at National University of Singapore for financial support. Wu also thanks the National Natural Science Foundation of China for financial support (No. 71003060). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Yongheng Deng, Joseph Gyourko and Jing Wu, “Land and House Price Measurement in China,” in Property Markets and Financial Stability, A. Heath, F. Packer and C. Windsor (ed.), Reserve Bank of Australia, (2012), ISBN: 978-0-9873620-3-2.