Real Estate Time-to-construct, Housing Market Dynamics, and Aggregate Fluctuations in China

We study how construction delays determine the influence of various external shocks on China?s real estate market and macroeconomic fluctuations. We find that construction delays amplify housing price fluctuations due to demand-side shocks, but mitigate the effect of supply-side shocks; moreover, such delays weaken the influence of policy shock on output volatility, while increasing its influence on house price fluctuations. Under the presence of construction delays, loan-to-value ratio is more effective to stabilize housing market in the short run, whereas interest rate policy has more persistent impact over the longer term. To maintain both steady economic growth and stable housing prices, the government should encourage real estate enterprises to innovate and improve housing returns, while relaxing various approval processes to accelerate investment and encourage more timely supply of housing.

Automated summary

Construction delays have varying effects on the real estate market and macroeconomic fluctuations, amplifying housing price fluctuations due to demand-side shocks and mitigating the effect of supply-side shocks. These delays weaken the influence of policy shocks on output volatility but increase their influence on house price fluctuations. Loan-to-value ratio is effective in stabilizing the housing market in the short run under construction delays, while interest rate policy has a more persistent impact in the longer term.