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A Theoretic Approach to China's Housing Market Boom and Down Payment Loans

Author

Listed:
  • Man Xu

    (Shenzhen University)

  • Qing Shi

    (Shenzhen University)

Abstract

In this paper, we theoretically model the dynamic credit-financed real estate market, from a micro point of view, to show how the interaction between expectation of higher house price and down payment loan (DPL), even without changes in economic fundamentals, could result in price boom. Further, we find that the elastic house supply, due to developers timing the market, could add to the problem. Our model offers a good interpretation to the 2015 house price boom witnessed in China. Also, we dig into the potential consequences of the real estate boom and corresponding policy implications.

Suggested Citation

  • Man Xu & Qing Shi, 2018. "A Theoretic Approach to China's Housing Market Boom and Down Payment Loans," Annals of Economics and Finance, Society for AEF, vol. 19(1), pages 265-278, May.
    • Handle: RePEc:cuf:journl:y:2018:v:19:i:1:xu:shi
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    References listed on IDEAS

    as
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    15. repec:bla:jfinan:v:59:y:2004:i:5:p:2013-2040 is not listed on IDEAS
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    More about this item

    Keywords

    House price; Moral hazard; Financial accelerator;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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