The Great Housing Boom of China

68 Pages Posted: 6 Oct 2015 Last revised: 30 Oct 2015

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

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Date Written: August, 2014


China?s housing prices have been growing nearly twice as fast as national income over the past decade, despite a high vacancy rate and a high rate of return to capital. This paper interprets China?s housing boom as a rational bubble emerging naturally from its economic transition. The bubble arises because high capital returns driven by resource reallocation are not sustainable in the long run. Rational expectations of a strong future demand for alternative stores of value can thus induce currently productive agents to speculate in the housing market. Our model can quantitatively account for China?s paradoxical housing boom.

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, 2014). FRB St. Louis Working Paper No. 2014-22, Available at SSRN:

Kaiji Chen (Contact Author)

Emory University - Department of Economics ( email )

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Federal Reserve Bank of Atlanta ( email )

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Yi Wen

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

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314-444-8731 (Fax)

Tsinghua University ( email )

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