This paper examines the housing sales in China from 2004 to 2015 utilizing an optimal dynamic general equilibrium theoretical framework combined with a macroeconomic model. The spatial panel econometric empirical results suggest that energy consumption has increased housing sales in China. However, since house is considered as a special commodity in China, and housing prices show positive impacts on housing sales.
There are many studies on energy consumption [
Currently, more and more scholars start to discuss the nexus between energy and housing issue. According to the mandatory energy performance certificates of the 2009-2010 in the Swedish private housing transactions [
As we know, in many developed countries, wind turbines are constructed as part of a strategy to reduce dependence on fossil fuels. Using a difference-in-differences methodology with a unique Dutch house price dataset covering the period 1985-2011, Dröes and Koster [
Obviously, the nexus between energy consumption and housing sales has not been pay attention to, according to the literature above. Hence, the theoretical and empirical contributions of this paper are that we utilize the Keynesian Optimal General Equilibrium Model and Panel Spatial Econometric Approach to analyze the effect of energy consumption on housing sales in China.
The structure of this paper is as follows. This introduction section provides a brief overview of prior research analyzing the housing prices and energy consumption. In Section 2, we set up the optimal dynamic general equilibrium theoretical model with the energy variable and combining the macroeconomic model in the determination of the sales of housing on province level. In Section 3, we present the data utilized in the analysis and introduce the econometric methods employed. The impacts on metropolitan housing sales are examined in Section 4 and Section 5 presents conclusions and further discussion.
In our optimal dynamic general equilibrium model, we assume the total social welfare maximization problem is expressed as below:
max h t + s , c t + s V t = ∑ s = 0 ∞ β s U ( h t + s , c t + s ) (1)
where Vt represents the total social welfare from period 0 to infinite, β = 1 / ( 1 + θ ) represents the discount rate, U represents the social welfare function, ht+s represents the housing consumption at the period (t + s), and ct+s represents other consumption except housing consumption. Given the law of diminishing marginal utility, the social welfare function has the property of strict quasi-concave, which means U c c , U h h ≤ 0 and U c c , U h h ≤ 0 .
Suppose the accumulation equation of housing can be expressed as follows:
Δ h t + 1 = S t + γ h t (2)
where S t denotes the capacity of the real estate at the t period, and γ denotes the value-added rate. Furthermore, considering the budget constraints of the society being expressed as:
Δ a t + 1 + c t + p t h h t = x t + r t a t + w t L t (3)
where Δ a t + 1 represents the financial assets purchased at the (t + 1) period, p t h represents the price of the house at the t period, x t represents the dividend income, r t and a t respectively represent the interest rate of financial assets at the t period and the stock of financial asset at the t period. w t represents the wage at the t period and L t represents the number of labor at the t period.
According to the Equations (1), (2) and (3), we can set up the Hamiltonian function:
H = U ( c t + s , h t + s ) + λ ( x t + s + r t + s a t + s + w t + s n t + s − c t + s − p t + s h h t + s + 1 + p t + s h ( 1 + γ ) h t + s (4)
The first order conditions are as below:
U c , t + s − λ t + s = 0 (5)
U h , t + s + λ t + s p t + s h ( 1 + γ ) − λ t + s − 1 p t + s − 1 h = 0 (6)
Combining (5) and (6), we obtain:
U c , t + 1 U c , t ( 1 + r t + 1 ) = 1 (7)
And the approximate solution of optimal housing consumption utility is expressed:
U h , t + 1 = U c , t + 1 p t + 1 h ( − Δ p t + 1 h p t h − 1 − γ ) (8)
Suppose the social welfare function takes the Cobb-Douglas form:
U ( c t , h t ) = c t α h t 1 − α , 0 < α < 1 (9)
c t + 1 p t + 1 h h t + 1 = α 1 − α ( − γ − p t + 1 h p t h ) (10)
h t + 1 = c t + 1 ( 1 − α ) p t + 1 h α ( − γ − p t + 1 h p t h ) (11)
Suppose the total output in the society is the function of labor and energy input.
Y t = F ( E C t , L t ) (12)
where ECt denotes the stock of energy used at period t, so the accumulated energy use equation is: Δ E C t + 1 = i t − δ E C t , it denotes the flow of energy consumed or investment on energy extraction at period t and δ denotes average extraction cost of energy.
In the profit maximization equilibrium point, the first order condition requires the wage is identical to the marginal output of labor, and the marginal output of energy is identical to the extraction cost of the energy:
F n , t + s = w t (13)
F E C , t + s = δ (14)
Given energy stocks and specific technical level, higher real wages will increase labor demand. Similarly, the demand for energy is F k , t + 1 − 1 ( δ ) , and the flow of energy equation can be expressed:
i t = F k , t + 1 − 1 ( δ ) − ( 1 − δ ) E C t (15)
We assume the demand for real estate is a negatively sloped linear function as follows:
h t = g + k p t h ( k < 0 ) (16)
The Equation (16) can be expressed as follows:
k p t h = h t − g ⇒ p t h = h t − g k
On the other hand, the supply function can be expressed as:
p t h = C 0 + C 1 S t (17)
where C 0 represents fixed cost due to the real estate construction and C 1 represents the marginal cost of real estate for construction. Combining (16) and (17), we have
h t * = g + k C 0 + C 1 k S t (18)
The difference equation which describes the housing capacity as a function of time is obtained by equating “come in market” minus “come out market” with the impact on the housing capacity, namely,
S t + 1 = R t + ( s − 1 ) h t (19)
where R t is new building entering the housing market, s is return flow into market coefficient. From (18) and (19), we have
S t + 1 = R t + ( s − 1 ) ( g + k C 0 + C 1 k S t ) = R t + ( s − 1 ) C 1 k S t + ( s − 1 ) g + ( s − 1 ) k C 0 (20)
⇒ S t + 1 + ( 1 − s ) C 1 k S t = R t + ( s − 1 ) g + ( s − 1 ) k C 0 (21)
The solution of (21) is as below:
S t * = [ S 0 − R t + ( s − 1 ) g + ( s − 1 ) k C 0 1 + ( 1 − s ) C 1 k ] [ ( s − 1 ) C 1 k ] t + R t + ( s − 1 ) g + ( s − 1 ) k C 0 1 + ( 1 − s ) C 1 k (22)
Combining (18) and (22), we have:
h t * = C 1 k [ S 0 − R t + ( s − 1 ) g + ( s − 1 ) k C 0 1 + ( 1 − s ) C 1 k ] [ ( s − 1 ) C 1 k ] t + C 1 k R t + ( s − 1 ) g + ( s − 1 ) k C 0 1 + ( 1 − s ) C 1 k + g + k C 0 (23)
Similarly, combining (17) and (22), we have:
p t h * = C 1 [ S 0 − R t + ( s − 1 ) g + ( s − 1 ) k C 0 1 + ( 1 − s ) C 1 k ] [ ( s − 1 ) C 1 k ] t + C 1 [ S 0 − R t + ( s − 1 ) g + ( s − 1 ) k C 0 1 + ( 1 − s ) C 1 k ] + C 0 (24)
It is assumed that the total output function is Y t = u t E C t a L t b , and u t is the level of industrialization at t period, which is transferred into logarithmic form:
ln Y t = a ln E C t + b ln L t + ln u t (25)
Let N X t denote the net export, the total consumption is:
T C t = c t + h t p t h + N X t = α α − 1 p t h ( γ + p t h p t − 1 h ) p t h h t + h t p t h + N X t (26)
According to the national income equity with the government expenditure ( G t ), we have
Y t = T C t + i t + G t = [ α α − 1 ( p t h ) 2 ( γ + p t h p t − 1 h ) + p t h ] h t + N X t + F k , t + 1 − 1 ( δ + r ) − ( 1 − δ ) E C t + G t (27)
When the economy system reaches the steady state, the (27) is expressed as:
ln Y t = ln [ α α − 1 ( p t h ) 2 ( γ + p t h p t − 1 h ) + p t h ] + ln h t + ln [ F k , t + 1 − 1 ( δ ) ] − ln [ ( 1 − δ ) E C t ] + ln G t (28)
The Equation (28) is further transformed into:
ln h t = ( a + 1 ) ln ( E C t ) + b ln L t + ln u t − ln [ α α − 1 ( p t h ) 2 ( γ + p t h p t − 1 h ) + 1 ] − ln [ F k , t + 1 − 1 ( δ ) ] − ln ( δ − 1 ) − ln G t − ln N X t (29)
The Equation (29) will be used to explain the rapid rise in the sales of housing in China. So, from Equation (29), the effect mechanism of energy consumption on equilibrium housing sales can be derived:
∂ ln h t ∂ ln ( E C t ) = a + 1 (30)
So, an important hypotheses stem from Equation (30):
Hypothesis: Energy consumption is positively related with housing sales in China.
In order to test the effect of energy consumption on housing sales above, we utilized data from China and conduct this analysis at the province level. However, we exclude the data from Tibet province, because of the problem of data missing. Hence, there are 30 provinces in our sample. Panel data from 2004 to 2015 were obtained from the China statistical yearbook from 2005-2016 and the China Stock Market & Accounting Research (CSMAR) Database and EPS database. The spatial distribution of housing sales of China in 2004 and 2015 are listed in
Similarly, the spatial distribution of coal consumption of China in 2004 and 2015 are listed in
The description and definition of variables are shown in
The statistical description is demonstrated in
| Variable | Mnemonic | Definition | Expected direction |
|---|---|---|---|
| housing sales | ltsale | ltsale = ln(housing sales) | |
| coal consumption | lcoal | local = ln(coal consumption) | + |
| average price of house | laprice | laprice = ln(average price of house) | + |
| employment in housing sector | lem | lem = ln(em) | + |
| industrialization | lur | lur = ln(non-agricultural output/GDP) | + |
| net export | lnx | lnx = ln(export-import) | - |
| local government expenditure | lg | lg = ln(local government expenditure) | - |
| Variable | Obs | Mean | Std. Dev. | Min | Max | Skewness | Kurtosis |
|---|---|---|---|---|---|---|---|
| lsale | 360 | 15.78512 | 1.24224 | 11.68179 | 18.41741 | −0.54273 | 2.904726 |
| lcoal | 360 | 9.066617 | 0.909592 | 5.786928 | 10.61954 | −0.9167 | 4.337971 |
| laprice | 360 | 10.20024 | 0.668059 | 8.346405 | 11.58952 | −0.14927 | 2.402243 |
| lur | 360 | 4.478663 | 0.070334 | 4.144832 | 4.600789 | −0.80762 | 5.206171 |
| lem | 360 | 10.92285 | 0.753468 | 8.394347 | 12.34112 | −0.79331 | 3.644049 |
| lg | 360 | 7.201438 | 0.881996 | 4.673856 | 9.189754 | −0.44411 | 3.028859 |
| lnx | 360 | 6.56454 | 11.51134 | −17.226 | 17.0883 | −1.12129 | 2.387432 |
To describe the statistical characteristics among the variables, the scatter fitting figure is utilized.
A standard individual ADF test was conducted on stationary panel data [
Δ y i t = ρ i y i , t − 1 + ∑ L = 1 p i β i L Δ y i , t − L + z ′ i t γ i + ϵ i t , i = 1 , 2 , ⋯ , N ; t = 1 , 2 , ⋯ , T (31)
where, y = {lsale, lcoal, laprice, lem, lur, lnx} is 5 * 1 dimensional vector, z ′ i t is a temporal trend term, γi is the coefficient vector, ϵ i t is the error term and satisfies the independent normal distribution.
Since the fixed effect regression comes from the OLS panel model, we firstly introduce the latter:
l t s a l e i t = x ′ i t β + z ′ i δ + μ i + ε i t ( i = 1 , 2 , ⋯ , n ; t = 1 , 2 , ⋯ , T ) (32)
where, x i is vector including the key variables (local, laprice, lur) and controlled variables (lg, lem, lnx); the observable random variable z i represents the intercept term of individual heterogeneity such as customs, culture, location, etc., disturbance term is composited by μ i + ε i t , which is also called composite error term. Unobservable random variable μ i represents the intercept term of individual heterogeneity, and ε i t is the perturbation term varying with the individual and time. It is generally assumed that ε i t is independent and identically
distributed, and is not related to μ i . The pooled OLS model and fixed effect model are based on (32). The pooled OLS regression assumes that all individuals have a consistent regression equation, and the model (33) is transferred as follows:
l t s a l e i t = α + x ′ i t β + z ′ i δ + ε i t ( i = 1 , 2 , ⋯ , n ; t = 1 , 2 , ⋯ , T ) (33)
For the fixed effect model, given the individual i, the mean value of the Equation (33) respect to time t is as below:
l t s a l e i t ¯ = x ′ i t ¯ β + z ′ i δ + μ i + ε i t ¯ ( i = 1 , 2 , ⋯ , n ; t = 1 , 2 , ⋯ , T ) (34)
Then, the Equation (32) minus the mean Equation (34), so we obtain:
l t s a l e i t − l t s a l e i t ¯ = ( x i t − x ′ i t ¯ ) ′ β + ( ε i t − ε i t ¯ ) (35)
Next, we define l t s a l e i t ˜ = ( l t s a l e i t − l t s a l e i t ¯ ) , x i t ˜ = ( x i t − x ′ i t ¯ ) , ε i t ˜ = ( ε i t − ε i t ¯ ) . We have:
l t s a l e i t ˜ = x i t ˜ ′ β + ε i t ˜ (36)
In (36), μ i can be eliminated, so if ε i t ˜ is not correlated with x i t ˜ , OLS can be used to estimate consistent estimates β .
In order to measure the spillover effect of housing sales, the spatial panel data econometric model generally can be expressed as [
y i t = τ y i , t − 1 + ρ w ′ i y t + d ′ i X i δ + μ i + γ i + ε i t
ε i t = λ m ′ i ε i + ν i t
where, w ′ i is the ith row in spatial weight matrix W ( i , j ) , w ′ i y t = ∑ j = 1 n w ′ i j y j t , and w i j is the element of the spatial weight matrix W ( i , j ) . ρ w ′ i y t is the spatial lagged term; y is the dependent variable(ltsale), X is the vector of independent variables (local, laprice, lem, lex, lg, lur), μ i is the individual effect among the provinces; γ i is the time effect among the provinces; m ′ i is the disturbing term at the ith row in spatial weight matrix.
If λ = 0 and δ = 0 , we will have the spatial autoregressive model. If τ = 0 and δ = 0 , we will have the spatial autocorrelation model. If τ = ρ = 0 and δ = 0 , we will have the spatial error model.
Spatial weight matrix is the requirement to use spatial econometric analysis. Based on the spatial distance between provinces and according to the spatial distribution of the variables, we construct the spatial weight matrix. The method to construct matrix is that if two provinces are adjacent, and the value of element in the spatial weight matrix is identical to 1. Otherwise, the value of element in the spatial weight matrix is identical to 0. Then through the Moran index, we could measure the spatial dependence of the spatial panel data. The Moran index is as follows [
I = n ∑ i = 1 n ∑ j = 1 n ω i j ( x i − x ¯ ) ( x j − x ¯ ) ( ∑ i = 1 n ∑ j = 1 n ω i j ) ∑ i = 1 n ( x i − x ¯ ) 2
where x ¯ = 1 n ∑ j = 1 n x i , x i is the value of the ith province, n is the number of province, ω i j is the value of element in spatial weight matrix from the ith province to the jth province. Moran index ranges from [−1, 1]. If I is closer to 1, it means the stronger positive spatial correlation. If I is close to −1, it means the negative spatial correlation is stronger. If I is closer to 0, it means spatial correlation does not exist. Moran index can be regarded as the coefficient of correlation between the spatial lag and the value of observation. If the observation value and the spatial lag are drawn scatter diagram, namely Moran scatterplot, the Moran index I is the slope of the regression line of the scatter.
We use individual ADF test to identify the unit root process. The null hypothesis is that the variable is nonstationary. The results in
In terms of the IPS test, the null hypothesis is that the panel series are nonstationary. The test results are shown in
| variable | t-bar | cv10 | cv5 | cv1 | Z[t-bar] | P-value | length |
|---|---|---|---|---|---|---|---|
| ltsale | −2.098 | −2.07 | −2.15 | −2.32 | −1.923 | 0.027** | 1 |
| lcoal | −5.055 | −2.07 | −2.17 | −2.34 | −16.603 | 0.000*** | 2 |
| laprice | −2.153 | −2.07 | −2.15 | −2.32 | −2.215 | 0.013** | 0 |
| lur | −2.24 | −2.07 | −2.17 | −2.34 | −2.589 | 0.005*** | 2 |
| lnx | −2.106 | −2.07 | −2.17 | −2.34 | −1.92 | 0.027** | 0 |
| lg | −4.542 | −2.07 | −2.17 | −2.34 | −14.052 | 0.000*** | 2 |
| lem | −2.274 | −2.07 | −2.17 | −2.34 | −2.759 | 0.003*** | 0 |
Note: *indicates 10% critical value, **indicates 5% critical value and ***indicates 1% critical value.
| variable | t-bar | cv10 | cv5 | cv1 | W[t-bar] | P-value | length |
|---|---|---|---|---|---|---|---|
| ltsale | −2.003 | −1.69 | −1.73 | −1.82 | −3.171 | 0.001*** | 3 |
| lcoal | −2.54 | −1.69 | −1.74 | −1.83 | −5.847 | 0.000*** | 0 |
| laprice | −2.05 | −1.69 | −1.73 | −1.82 | −3.463 | 0.000*** | 2 |
| lur | −2.068 | −1.69 | −1.74 | −1.83 | −3.078 | 0.001*** | 1 |
| lnx | −1.838 | −1.690 | −1.740 | −1.830 | −1.824 | 0.034** | 1 |
| lg | −1.965 | −1.69 | −1.74 | −1.83 | −2.572 | 0.005*** | 0 |
| lem | −2.764 | −2.330 | −2.380 | −2.480 | −3.508 | 0.000*** | 0 |
Note: *indicates 10% critical value, **indicates 5% critical value and ***indicates 1% critical value.
According to the Moran index of housing sales from 2004 to 2015 in China, as shown in
Additionally, the spatial distribution of Moran index of the housing sales of China in 2004 and 2015 are listed in
Similarly, the spatial distribution of Moran index of the coal consumption of China in 2004 and 2015 are listed in
Figures 9-12 all demonstrate that some provinces in deep red can reject the null hypothesis of non-spatial auto correlation, which is consistent with the global spatial auto correlation test result.
In addition, the Moran scatterplot of housing sales of China in 2004 and 2015 is listed in
Similarly, the Moran scatterplot of coal consumption of China in 2004 and 2015 is listed in
Since different models have different advantages and characteristics, and in order to ensure the robustness of the results, fixed effects panel model (PFE), spatial autoregression model (SAR), spatial error model (SEM), the spatial autocorrelation model (SAC) are utilized. In the SAR model, individual (SAR-IND) and individual-time (SAR-IT) these two types of model are considered, respectively.
| PFE Model | SAR_FE Model | SEM_FE Model | SAC_FE_IND Model | SAC_FE_IT Model | |
|---|---|---|---|---|---|
| lcoal | 0.410*** | 0.324*** | 0.170** | 0.256*** | 0.149** |
| (−4.72) | (−4.70) | (−2.07) | (−4.83) | (−2.47) | |
| laprice | 1.205*** | 0.569*** | 1.274*** | 0.201** | 0.621*** |
| (−10.32) | (−5.36) | (−12.33) | (−2.30) | (−4.77) | |
| lur | 4.412*** | 4.371*** | 1.697** | 4.192*** | 3.002*** |
| (−5.16) | (−6.49) | (−2.50) | (−6.78) | (−4.68) | |
| lem | 0.139* | 0.349*** | 0.425*** | 0.292*** | 0.572*** |
| (−1.67) | (−5.15) | (−5.87) | (−5.54) | (−9.14) | |
| lg | −0.069 | −0.257*** | −0.138* | −0.237*** | −0.214*** |
| (−0.71) | (−3.25) | (−1.68) | (−3.77) | (−2.99) | |
| lnx | −0.001 | −0.002 | −0.001 | −0.001 | 0.001 |
| (−0.51) | (−0.95) | (−0.47) | (−0.56) | (−0.32 | |
| intercept | −21.004*** | ||||
| (−6.04) | |||||
| rho | 0.486*** | 0.749*** | 0.311*** | ||
| (−12.03) | (−16.84) | (−3.11) | |||
| lambda | 0.574*** | −0.679*** | −0.391*** | ||
| (−11.07) | (−5.80) | (−2.72) | |||
| sigma2_e | 0.035*** | 0.037*** | 0.029*** | 0.028*** | |
| (−13.24) | (−12.95) | (−11.23) | (−12.99) | ||
| N | 360 | 360 | 360 | 360 | 360 |
| R2 | 0.92 | 0.675 | 0.757 | 0.645 | 0.81 |
Notes: 1) t statistics in parentheses. 2) *indicates 10% critical value, **indicates 5% critical value and ***indicates 1% critical value.
Furthermore, the coefficient of housing prices is positive significant, which is consistent with the statement derived from Equation (10). Since Equation (10), we have ∂ h t + 1 ∂ p t + 1 h = c t + 1 ( 1 − α ) [ p t + 1 h − p t h ( r t + 1 + 1 − γ − p t + 1 h / p t h ) ] α p t h ( p t + 1 h ) 2 ( r t + 1 + 1 − γ − p t + 1 h / p t h ) 2 > 0 . Actually, in China, the housing prices bubbles demonstrate inter-provincial spillover effect [
To analyze the nexus between coal consumption and housing sales in China, an optimal dynamic general equilibrium model is setup including energy and housing sector. The empirical results indicate housing sales is positively correlated with the energy consumption and is positively correlated with housing prices. That outcome is similar to what has been documented in previous studies conducted using national level data for European countries, such as Wales, Sweden and Holland. It is instructive that, during a period of rapid industrialization, energy is found to represent a crucial factor undergirding economic growth [
Indeed recent decades have seen a decoupling of GDP growth and energy consumption at the metropolitan level [
Future research avenues include development of the continued variable optimal dynamic stochastic general equilibrium of the nexus among housing prices, energy consumption, and economic growth. This model would require an in-depth analysis of dynamic optimization of housing prices along with specially developed non-linear energy consumption function in China [
This work was supported by National Ten Thousand Outstanding Young Scholar Program (Grant Number: W02070352) as well as Key Project of National Natural Science Foundation in China, (Grant Number: 71742003).
The authors declare no conflicts of interest regarding the publication of this paper.
Du, Z.P., Zhang, W.K. and He, Y.M. (2018) Does Energy Consumption Drive Housing Sales in China? Theoretical Economics Letters, 8, 3548-3566. https://doi.org/10.4236/tel.2018.815218