Housing price–volume dynamics under the regulation policy: Difference between Chinese coastal and inland cities

• Housing price–volume relationships are examined before and after the House Purchase Limit Policy in China.
• House searching models are developed with down-payment constraints to explain price–volume dynamics.
• Different price–volume causal relationships exist between coastal and inland cities.
• The direct government intervention cannot radically change the driving mechanism.
• Results can provide a basis for some government departments to assess related policies.

This paper introduces the house searching model with down-payment constraints and analyzes the price–volume relationships in Chinese coastal and inland housing markets. With the panel data from 35 Chinese metropolitans, the Granger relationship (from price change to trading volume) is found in coastal cities where house prices are high with speculation. But under the rigorous policy of purchase limit, such price–volume linkage is somewhat dampened. By contrast, in inland cities where speculative activity is relatively weak, the Granger causality (from volume to price change) is more significant before the prohibition policy. After that, the effects reverse. However, in both kinds of cities the impulse responses remain significant, indicating that the driving mechanisms between price and volume may occur because of exogenous impulses. The results suggest that strict market intervention causes some significant effects but cannot radically change the driving mechanism.