The impact of money supply on inter-city housing price differentiation and transmission mechanisms

In recent years, housing prices have become a focal point of attention in Chinese society, with particular emphasis on the relationship between housing prices in different cities. However, the academic discussion and depth of research on this issue are limited, and the underlying mechanisms remain unclear. This paper, based on the new economic geography theoretical model, incorporates the housing sector and macroeconomic monetary policy variables to enhance the theoretical model of inter-city housing price relationships. Empirically, using baseline regression and introducing various interaction terms, the paper verifies the influencing factors of housing price differentiation and the transmission mechanisms through which monetary policy affects housing price differentiation. The study finds that population, resident income, and land transfer area are crucial factors influencing inter-city housing price differentiation. From the perspective of money supply, the impact of narrow money supply (M1) growth rate is more significant than that of broad money supply (M2), and the greater the difference between them, the more dynamic the real estate market becomes, leading to further widening of inter-city housing price differentiation. This paper contributes to filling gaps in related fields, revealing the mechanism through which residents’ home-buying behavior is influenced by money supply. It provides essential references for government departments to formulate policies that appropriately stabilize investment cycles and guide the flow of money.