Investment Demand and Housing Prices in an Emerging Economy

Abstract

This paper hypothesizes that the increase in money supply induced by rapid economic growth leads to strong investment demand in the Taiwanese housing market. A threshold model is used to confirm money supply as the key threshold variable. When the growth rate of money supply is below the model`s estimated threshold value, household number, income, and user cost of housing capital are significant variables. It appears that service demand and housing supply are essential in creating the linear movement of housing prices. However, when the growth rate of money supply exceeds the threshold value, stock prices and the inflation rate become important. These findings suggest that non-linear movement of housing prices is primarily driven by investment demand.