Club convergence of regional housing prices in China: Evidence from 70 major cities

Abstract

House prices in China have increased greatly in recent decades, and the dynamics seem to vary across cities. It is rational to assume that urban housing prices converge to different equilibria and form club convergence (i.e., subgroups). Empirical evidence on the existence of club convergence is limited, however, as is evidence on the underlying mechanisms. Therefore, the aim of the present study was to 1) detect club convergence in housing prices across Chinese regions over the period 2006–17 and 2) examine the determinants influencing club formation. A log t test in combination with a clustering algorithm was used to assess club formation. The results showed that regional housing prices face heterogeneous dynamics, providing some evidence of housing market segmentation. Four convergence clubs of Chinese regions with different convergence levels were identified. Ordered logit model showed that population growth, income, and housing regulation are among the drivers of club formation. The results also indicated that being in a different Chinese city-tier and differences in urban healthcare affect housing market club membership. The findings are supportive for policymakers to coordinate balanced regional housing development across China.