Housing Price, Housing Rent, and Rent-Price Ratio: Evidence from 30 Cities in China

Rent-price ratio is a key indicator reflecting the health of the real estate market. However, this ratio varies in different periods and different areas of China. To understand the changes of the rent-price ratio, it is important to identify what factors impact it. With a simultaneous equation model and panel data from 30 cities in China during 2008-2013, this paper investigates the influential factors of housing price and housing rent, respectively, and then identifies the different influential factors of the rent-price ratio among various tiers of cities. Hausman test verifies that housing price and housing rent have an endogenous relationship. At 10% significance, eight and five exogenous variables exert significant impacts on housing price and housing rent, respectively. At the national level, price expectation has been observed to have the strongest impact on the rent-price ratio. At the city level, except gross domestic product (GDP) and price expectation, eight other factors have been observed to have different impacts on the rent-price ratio in different cities.