Measuring the degree of speculation in the residential housing market: A spatial econometric model and its application in China

Since the housing marketization reform, China's real estate industry has rapidly developed and commercial housing prices have risen sharply. The main reason for this is the speculative demand for housing, which breaks the equilibrium of supply and demand, leading to housing prices deviating from their basic value. The housing market in China is not isolated by province, since speculative behavior in one part of the country can affect other regions. This paper analyzes the spatial relevance in housing prices among different provinces in China by calculating Moran's I index and by measuring the speculation degree through spatial autoregressive model (SAR), a spatial economic model combined with a spatial weight matrix. For commercial housing speculation degree measurement and comparison, 31 provinces in China were chosen along with the following variables: housing prices, personal disposable income, one-year personal housing mortgage rates, housing prices growing rates, the rent, amount of residential investment, and the construction areas of houses. The results show that China's housing prices have a clear interaction among the selected cities, and that housing speculation behavior also influences each other in space. Although there are speculation activities in China, from a global perspective the degree of speculation, which varies from region to region, is still just within internationally acceptable limits. Although there are some regions with high degrees of housing speculation, the speculation is not yet China-wide.