Housing markets’ linkage between China and Taiwan

• DOI: https://doi.org/10.1108/IJHMA-01-2019-0005
• Pages: 826-848
• Published date: 25 June 2019
• Date: 25 June 2019
• Author: Mei-Se Chien,Neng-Huei Lee,Chih-Yang Cheng
• Subject Matter: Property management & built environment

Housing markets’linkage

between China and Taiwan

Mei-Se Chien

Department of Finance and Information,

National Kaohsiung University of Science and Technology, Kaohsiung, Taiwan

Neng-Huei Lee

Department of Business Administration, National Quemoy University,

Kinmen Hsien, Taiwan, and

Chih-Yang Cheng

Department of Finance, National Sun Yat-sen University, Kaohsiung, Taiwan

Abstract

Purpose –This paper aims to examinethe linkage of regional housing markets between Taiwan andChina

as increasingeconomic integration.

Design/methodology/approach –Two time-varying estimations of cointegration tests, Gregory and

Hansen (1996) cointegrationtest with structural break and the recursive coeff‌icients of cointegration(Hansen

and Johansen, 1993) are appliedto trace the possible dynamic linkage of cross-border regionalhousing prices

between Taiwanand China.

Findings –First, the estimatingresults of the long-run relationships show that increasinghousing prices in

Beijing and Shanghaidecrease Taipei’s house prices, while Shenzhenand Chengdu have converse effects. The

technologies’levels of Taiwanese industries surrounding the cities in China will affect the direction of the

linkage of regional housing prices between the two economies. Second, in light of causalities of these f‌ive

housing prices’changes,Beijing and Shanghai lead Taipei and Shanghai leads Chengdu,which, in turn, leads

Shenzhen. Finally, the results of time-varying cointegration tests show that some critical economic and

politicalincidents changed the linkages of housing prices between Taipei and the fourcities in China.

Originality/value –Although some empirical works examinedthe linkages between cross-border house

prices in Europe and the USA, study has looked at the linkages of cross-border housing prices between

Taiwan and China. This is an interestingtopic insofar as house price integration has implications for wealth

effects that feed into consumer expenditure in both Taiwan and China. The empirical evidence overall

displays the existence of the integration of regional housing markets between Taiwan and China. For the

longer-term future, increasing economic integration between China and other Asia countries will result in

greater and more diversif‌iedcross-border housing markets and pools of investors.

Keywords China, Cointegration, Housing markets, Taiwan, Economic integration,

Dynamic linkage

Paper type Research paper

1. Introduction

Taiwan and China have historicallybeen related. Though political disputes over the issue of

sovereignty between the two economies acrossthe Taiwan Strait promise no easy solution,

The authors would like to thank the editors and the anonymous referees for their highly constructive

comments. Besides, the authors would like to thank the Ministry of Science and Technology, Taiwan,

R.O.C. for f‌inancially supporting this research under grant no. MOST 103-2410-151-016.

IJHMA

12,5

826

Received15 January 2019

Revised4 April 2019

14April 2019

Accepted16 April 2019

InternationalJournal of Housing

Marketsand Analysis

Vol.12 No. 5, 2019

pp. 826-848

© Emerald Publishing Limited

1753-8270

DOI 10.1108/IJHMA-01-2019-0005

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/1753-8270.htm

trade and investment relationships between them have been very prosperous.Over the past

two decades, trade and investment interactions between China and Taiwan have been

fruitful for sides, causing closer economic ties and continuously deepening the

interconnectedness of the two. If the interrelationship between the two economies shows

closer economic integration, then housing market cycles between them could be more

similar.

Although a house is a non-traded good, which diff‌icultly substituted across geographic

areas, there are three channels to cause co-movement in international housing prices

(Vansteenkiste and Hiebert, 2011).First, the co-movement of housing prices across different

countries could be the by-effect of common movements in normal housing markets’

fundamentals across countries.Next, f‌inancial innovations and higher f‌inancial integration,

resulting in a highly synchronized easing in borrowing restraints, also could cause

international co-movements of housing prices. Third and f‌inally, housing-specif‌ic factors,

especially those related to some convergence of house risk premium and the returns of a

house as an asset, could cause convergence in housing price cycles across countries

(Vansteenkisteand Hiebert, 2011).

However, some factors, such as language and cultural differences, could limit co-

movements of cross-broader housing prices, but this is not the case between Taiwan and

China, as both have roughly the same ancestry and share the same culture, language,

customs and traditions. Hence, in an integrated economic and cultural region and in a

neighboring area, such as for Taiwan and China, housing prices can be expected to exhibit

some extent of co-movement. Co-movement may bring about spillovers as powerful

dynamics in country-specif‌ic housing price changes. More specif‌ically, co-movements of

housing prices in neighboring economies, whether rising or moving higher, could possibly

fuel more housing price expectations and some f‌irms to develop in other countries,

increasing housing demand and prices in those neighboring economies (Gupta et al.,2015).

Although there are expected and limited “direct”spillovers of country-specif‌ic housing

shocks –for instance, through capital or people moving across borders –diffusions via

“indirect”channels couldarise even in the case of small economies. As such co-movement of

cross-border housing prices could be most relevant in an integrated economic region.

Increasing regional economic integration causes not only a convergence of economic

behavior but also less structural differencesamong different countries. Thus, developments

among various housingmarkets could be more similar (Kasparova and White,2001).

Based on the hypothesis that shocks to regional housing prices “ripple out”across an

economy, there is a voluminous amountof empirical literature examining this topic through

various methodologies for different economies (Meen, 1999;Jones et al.,2004;Cook, 2003;

Holmes, 2007;Jones and Leishman, 2006;Canarella et al.,2012). Some other papers have

examined the linkages between private and public housing markets (Ong and Sing, 2002;

Sing et al. (2006). Another important line of empirical literature encompasses co-movement

of cross-border housing prices, with some empirical works having examined the linkages

between cross-border housing prices in Europe. Kasparova and White (2001) did not

conf‌irm the integration of housing markets acrossthe European Union (EU) countries from

1970 to 1998 by applying unit root and cointegrationtests. However, other researchers have

found some extent of integration within cross-border housing markets in Europe.

Vansteenkiste and Hiebert(2011) applied cointegration and impulse response functions, and

their empirical results indicatedlimited cross-border diffusions of housing prices in the euro

area. Yang et al. (2005) used cointegration and generalized forecast error variance

decompositions (GVDC)to study dynamic relationships of public real estate markets among

nine European countries from January 1994 to June 2002. Their empirical results present

Housing

markets’

linkage

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