Housing market cycle in China: An empirical study based on stock-flow model

This paper analyzes the factors driving housing market cycle in China from 1986 to 2009 by extending the traditional stock-flow model. The conclusions are as follows. (1) Land supply, housing stock, population and income affect housing price significantly. (2) Housing price greatly affects housing construction with an elasticity of 1.28. (3) Expectation rather than user cost is the main determining factor of housing price. If the current price increases by 1%, ceteris paribus, the housing price is expected to increase by 0.48% in the next period. (4) Finally, we also identified measurements that are helpful to reduce price volatility in the housing market and to maintain macroeconomic control over the market. These measurements include increasing land supply, managing consumers´ expectations, strengthening the monitoring of macroeconomy and real estate market, and focusing on the continuity and consistency among different policies.