HOUSING PRICE AND FUNDAMENTALS IN A TRANSITION ECONOMY: THE CASE OF THE BEIJING MARKET

This article develops a dynamic rational expectations general equilibrium framework that links house value to fundamental economic variables such as income growth, demographics, migration, and land supply. Our framework handles nonstationary dynamics as well as structural changes in fundamentals that are commonplace in transition economies. Applying the framework to Beijing, we find that the equilibrium house price and rent under reasonable parameterizations of the model are substantially lower than the data. We explore potential explanations for the discrepancies between the model and the data.