The Effect of Housing Price Fluctuations on the Macro-economy

Since 2010, the central government of China has introduced a series of tightened policy to limit too fast ascension in housing price. This paper proposes a method to estimate the effect of housing price fluctuations on the macro-economy. In the model, housing price fluctuations not only change housing market situations, but also the productivity of construction and real estate sectors. Stress testing results show that the shock to real estate sector is much stronger than that to construction sector in stress scenarios. There are about 30% between their decreased degrees of value added relative to houses. Regarding 2009 as the base period, when sales price of new common houses decreases 1.65%, 10% and 20%, the GDP growth rate of China will reduce 1.9%, 2.8% and 3.9% respectively.