Purpose It develop a dynamic general equilibrium model, calculates fundamental house value as well as their deviations, analyzes their main factors and explores a closer housing policy in future. Design/methodology/approach Incorporating the stylized facts, this paper initially develops a dynamic general equilibrium model to determine house price. Findings (1) Per capita income, urban population, M2 growth rate and land finance dependence significantly and positively affect fundamental house values but minimum down payment ratio and deposit rates do not. (2) Extreme deviations stem from large swings in income, population, M2 growth, land finance, regulatory policies and housing price expectations, while down payment ratio (DPR), rational expectations and loan rates don't significantly affect deviations. (3) Excessive bubbles cluster in eastern and southern cities while severe slumps prevail in central-western and northern regions. Housing regulations have effectively curbed soaring prices but caused mild slumps. Housing policies may have partially strayed from their original goals. (4) Housing policy direction may be to align with the current stage of its development, closely monitor price trends and adjust key factors accordingly. Research limitations/implications Firstly, interpolation methods are used to improve a few data for several years or cities for short of official statistics. Secondly, the sample city size is only limited to 35 large- and medium-sized cities instead of 70-cities, 100-cities or all prefecture cities because of workload and statistical deficiencies. Thirdly, there are some literature discussing the intra-temporal non-separability between housing and non-durable consumption in fact (for example, Khorunzhina, 2021). However, the discussion is too complex to be completed in this article. Practical implications We provide with a theoretical evidence to explain why house price deviations are highly uneven across time and regions during the past 2 decades in China and explore the direction of their housing policies in future. Social implications This paper helps residents and businesses to evaluate house prices reasonably, avoiding their excessive optimism or pessimism about the housing market. Originality/value We develops a dynamic general equilibrium model with endogenized markets and six agents. Second, the stylized facts in China are introduced into the dynamic general equilibrium model (DGEM) to match house value in the real world, which consist of fueling house price, explosive currency and credit, local land leasing finance, rapid population urbanization, the housing purchase restrictions and the dominantly quantitative monetary policy. Third, we calculate the fundamental house values, the extreme deviations and their main factors. Then, we explore the direction of housing policy in the long run and in the short term.
Zhang et al. (Mon,) studied this question.