Special issue on housing and financial stability: An introduction

• DOI: http://doi.org/10.1111/1468-0106.12229
• Date: 01 August 2017
• Published date: 01 August 2017

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INTRODUCTION

Special issue on housing and financial stability:

An introduction

Charles Ka Yui Leung

City University of Hong Kong, Hong Kong

Correspondence

E‐mail: Kycleung@cityu.edu.hk

On 22 and 23 August 2016, the Hong Kong Institute for Monetary Research and the City Univer-

sity of Hong Kong, Department of Economics and Finance, Global Research Unit (GRU) jointly

hosted a conference on Real Estate and Financial Stability. This special issue contains papers

that were presented at the workshop, as well as post‐workshop contributions. Due to the contri-

butions by Greenwood and Hercowitz (1991), Baxter (1996) and Kiyotaki and Moore (1997),

among others, the importance of the housing market in the macroeconomy has been widely rec-

ognized. Many books and special issues have been produced (see Bardhan, Edelstein, & Kroll,

2012; Edelstein & Kim, 2004; Leung & Quigley, 2007; Rosenthal & Strange, 2008; McMillen,

2011) and numerous papers have been written (see Leung, 2004; Lin, Mai, & Wang, 2004; Davis

& Van Nieuwerburgh, 2014; Malpezzi, 2017 (for a review of the literature)). In spite of all these

efforts, as Zhu (2014) puts it, ‘detecting over‐valuation in housing markets is still more of an art

than a science. Broad measures, such as house price to rent ratios, provide a first pass. But

detailed analysis and judgment are needed to make a call about overvaluation’. The 2016 work-

shop, as well as the current special issue, are attempts to contribute in this area. Pacific Economic

Review (PER) is an appropriate choice for us as PER has previously published papers on housing

market dynamics and its relationship with the aggregate economy (e.g. see Peng, Tam, & Yiu,

2008; Cheng, Li, & Zeng, 2010; Chang, Chen, & Leung, 2013).

Given the increasing importance of the Chinese economy in the global world, the ‘economic

health’of the asset markets in China have been discussed extensively in recent years. Deng,

Girardin, Joyeux, and Shi (2017) address this concern by focusing on the relationship between

the stock market and the Shanghai housing market during the period 2005 and 2010. They adopt

a new approach to detect ‘bubbles’(or, in Zhu's terms, overvaluation) in both markets and they

find a tendency of stock market bubbles to appear before the housing market. An implication of

this research is that monitoring the ‘bubble’in the stock market would illuminate not only the

situation of the stock market but also the possible ‘bubble’formation in the housing market. This

clearly addresses some concerns of Zhu (2014) and other authors.

Clearly, the discussion on ‘bubbles’has always been controversial (e.g. see Giglio, Maggiori,

& Stroebel, 2016). In this issue, Chen and Cheng (2017) approach the problem from a very dif-

ferent angle. Based on Long and Plosser (1983), Kiyotaki and Moore (1997) and Iacoviello

(2005), they build a simple dynamic general equilibrium model. They derive the house price‐

to‐income ratio (PIR) from the model and compare that with aggregate data for the USA. They

DOI: 10.1111/1468-0106.12229

Pac Econ Rev. 2017;22:273–275. © 2017 John Wiley & Sons Australia, Ltdwileyonlinelibrary.com/journal/paer 273