A Study of Regional Differences in the Impact of Interest Rate and Credit Policies on Supply and Demand in the Residential Market

　　Theoretical analysis of regional differences in the impact of interest rates and credit policies on the residential market

　　First, the demand for residential housing is different in cities at different levels. Residential price and income significantly affect the demand, and the difference of economic development level of each city makes these two factors significantly different, and the price elasticity and income elasticity of residential demand are different. A few representative cities are selected from first, second and third tier cities for analysis. Figure 1 depicts the average residential price level in each city, the price is on an upward trend, but the average residential price in first-tier cities is significantly higher than that in second- and third-tier cities, and the growth rate is faster than that in second- and third-tier cities since 2007. Figure 2 shows the trend of per capita disposable income, which also shows an overall growth trend, with the growth rate of first-tier cities faster than second- and third-tier cities.

　　Second, the supply of residential housing is different in cities at different levels. Figure 3 shows the trend of residential investment completion, with first-tier cities much higher than other cities. Figure 4 shows the trend of residential construction area, the overall first-tier cities are much higher than other cities, and the second-tier is higher than the third-tier cities.

　　Third, financial support is different for cities at all levels. Domestic sources of funds for real estate development: the use of foreign capital, domestic loans, self-financing, etc. Domestic loans are obtained from banks to obtain money, which can be measured credit policy. According to statistics, first-tier cities get the most money from banks, second-tier cities get more money than third-tier cities, and there are regional differences in the availability of funds. In summary, the characteristics of cities at all levels are significantly different, and the study of regional differences in interest rates and credit policies from first-, second- and third-tier cities has significant implications for financial regulation policy improvement.

　　Empirical study and analysis

　Among them, per capita disposable income is an important factor affecting per capita demand and is positively related to demand. In terms of current disposable income per capita, the income elasticity of residential demand is the largest for third-tier cities, followed by second-tier cities, and the income elasticity is small and insignificant for first-tier cities. For first-tier cities, high wealth accumulation of high-income groups do not have to worry about the impact of rising housing prices, low-income groups have low income level payment power and serious lack of purchasing power, and the increase in income brings about insignificant changes in demand. The lagged one-period income only in first-tier cities income elasticity is high and significant.

Average residential price has a greater impact on demand and is negatively correlated with demand. The price elasticity of demand is highest in first-tier cities, followed by third-tier cities, and insignificant in second-tier cities. There is a large amount of speculation in the residential market in first-tier cities, and for the group of investors who gain profit by speculation, they are more responsive to residential prices and generally buy when the property market prices are low in order to gain greater profits, and similar problems exist in third-tier cities. Lagging a period of price impact on current demand, the price elasticity of demand in first-tier cities and second-tier cities is more significant, indicating that price increases have a certain time lag on the impact of demand.

　　From the interest rate policy, the current interest rate has a large and significant impact on second- and third-tier cities, and a small and insignificant impact on first-tier cities. Since interest rates are not taken logarithmically, the coefficients of the impact of interest rates on residential market demand in first, second and third tier cities are -4.68%, 7.96% and 6.62%, and the current interest rate has no significant effect on residential market suppression. Consumers’ residential purchases are influenced by budget constraints, and they are bound to borrow from banks when they have insufficient funds. When interest rates change, consumer demand generates substitution effect and income effect changes, and faces consumption intertemporal choice. Generally, the substitution effect of rising interest rates is negative and the impact of rising interest rates on demand depends on the sign and size of the income effect.

When consumers are borrowers, the income effect is negative and the overall effect of rising interest rates is negative; when consumers are savers, the income effect is positive and the total effect of rising interest rates depends on the size of the income effect and the substitution effect. The positive correlation between interest rates and residential demand in second- and third-tier cities indicates that the income effect of rising interest rates on consumers is greater than the substitution effect. For speculative demand, rising interest rates increase speculators’ opportunity costs and reduce their willingness to buy; negative interest rate elasticity of demand in first-tier cities indicates more speculative demand. The lagged one-period interest rate has a suppressive effect on demand in first- and third-tier cities, with a regulatory time lag, and an insignificant effect on second-tier cities.

Current period personal mortgage loans have a positive and significant effect on demand, with the greatest impact on second-tier cities. The lagged one-period loans have a large and significant impact on third-tier cities, indicating that there is a time lag in the impact of credit policy on demand in third-tier cities. 　　Table 2 shows the empirical results of supply.

Among them, the effect of current interest rate on residential investment in first- and second-tier cities is positive and insignificant, and the effect on third-tier cities is negative and significant, indicating that the current interest rate has a less significant impact on supply; the lagged one-period interest rate has an inhibitory effect on residential investment in first- and third-tier cities, but it is not significant, and the cumulative effect of interest rate is not significant. The current domestic loans have a large and significant effect on residential investment, with the greatest impact on third-tier cities, followed by second-tier and first-tier cities, which fully illustrates that the real estate industry is a capital-intensive industry, which is dependent on capital, and the lower level of economic development cities are more dependent on capital.

The lagged one-period domestic loans have a significant impact on first- and second-tier cities, with a greater impact on first-tier cities. The current profit level will significantly increase investment in second-tier cities, and the impact is not significant for first- and third-tier cities. One-period lagged profits have an insignificant impact on current residential investment. Overall, the level of profit does not constrain the level of residential investment, and residential supply is more influenced by the balance of supply and demand.

　　Conclusions and Recommendations

　　In summary, from the impact of interest rate and personal mortgage on demand in different cities, credit policy relaxation will greatly stimulate residential consumption demand, and its impact is more significant; interest rate has no significant effect on residential demand suppression, and the policy has time lag. The current interest rate only suppresses demand in first-tier cities; personal mortgage loans have the greatest impact on second-tier cities, and the effect on first- and third-tier cities is converging.

From the impact of interest rates and domestic loans on residential investment, interest rates do not have a significant impact on each city, while domestic loans have a significant impact on residential investment in the current period and the effect is significant, among which the development of residential market in second- and third-tier cities needs more credit policy support. The lagging period domestic loans have a significant impact on first- and second-tier cities, indicating that there is a certain time lag in credit policies in second- and third-tier cities.

The state regulation of the real estate market, especially the residential market as a matter of people’s livelihood, should not only focus on price changes, should be considered from the supply, demand; to pay attention to interest rates, credit policy regional regulation effect size and time duration, the implementation of different policies for different cities, the establishment of long-term regulation and control mechanism of the real estate market is significant. The relevant departments should take the monetary policy according to local conditions and differential treatment, to avoid a one-size-fits-all approach across the country, should be more effective in regulating the rapid growth of residential prices, to achieve sustainable and healthy development of the residential market.