What do we know about the status of housing market in China? Evidence from price and rent spillovers across first-tier cities

While spillovers have been widely examined in the overheated real estate market, only a few studies have focused on housing rents, which play a critical role in the fundamentals underlying housing prices. Using first tier city data in China, we introduce a quantifiable spillover method into the time-varying difference between housing rent and price behaviors. Our results indicate that, following the economic slowdown, that is, the "New normal" in 2014, these two housing submarkets began to run in opposite directions, with the housing price being highly related to inter-city spillovers, and the rental market being relatively more associated with local economic activity. Although this destabilized situation had by 2019 improved significantly due to the tight restrictions on residential sales, the COVID-19 pandemic seems to have brought about an increase in systemic risk across housing prices and rents.