While GDP and the money supply (M2), the two key demand fundamentals of China’s housing prices, shifted gears and decelerated after 2012, China’s housing prices maintained high growth rates, specifically during 2015-2018. To explain the puzzling phenomenon, we use the TVP-VAR model to compare the time-varying features of the factors driving up the housing prices. Our results depict the interesting finding that before 2012, macro-fundamental factors such as M2 and per capita GDP were the key drivers of housing prices. But after 2012, shadow banking had gained explanatory power alongside M2 and per capita GDP.
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