Hedonic price analysis on urban housing : an empirical research on Hangzhou and Suzhou

Abstract

Housing prices have soared for the past decade in China, including second tier cities, like Hangzhou and Suzhou. Most studies compared and investigated on the determinants of housing prices across cities, with land price being the main determinant. While, most researchers have attempted to study the determinants of housing prices in first tier cities like Beijing and Shanghai, few studied on second tier cities. Hence, our paper aims to fill the gap for the lack of research on this area.

In our paper, we investigate the determinants of price markup in housing price for Hangzhou and Suzhou. With a collection of 103 and 88 data observations for Hangzhou and Suzhou respectively during the period from 2005 to 2010, we set up a hedonic price model and analyze the variables that determine price markup. The empirical results provide evidence that households place significant value on having their houses near the metro stations, schools and having greater coverage of greenery in their housing estate.

To enhance our study on housing price behaviour of China, we did an extension study to examine the determinants for housing prices of 24 Chinese provinces and cities over a period from 2006 to 2009. With a total of 3677 data observations, we regress using OLS model and also adopted the fixed effect model using a monthly panel data of 800 data observations to substantiate our analysis. Our results show that variables such as trade balance, residential building investment and gross domestic product significantly affect the housing prices.

To summarize, our study reveals significant and positive relationship between land and housing price, however, the relationship between housing price and other explanatory variables are not that straightforward. With the findings in our study, we hope to provide greater insights into understanding the real estate market in China.