Unveiling systemic risk in China's housing market between first-and second-tier cities

Although the housing question has attracted worldwide attention, little is known about its systemic risk, which has a profound impact on the overall economy. More noteworthy is that China's urban housing markets are generally divided into two categories: first-and second-tier cities, and so we propose the rolling Diebold-Yilmaz connectedness method to investigate the systematic risks in first-and second-tier cities. Due to the recent reform of China's hukou system, cities in different tiers are moving from segmentation to integration. A time-varying Granger-causality test further corroborates the emergence of systemic risk underlying the causal relationship between the two tiers of systematic risk. Our results reveal that soaring market uncertainty points to first-tier cities; moreover, systemic risk also originates from first-tier cities. Our policy implication is that the authorities should set up a time-varying warning alert in the systematic risk from first-tier cities to mitigate the housing systemic risk and reduce financial instability in the future. © 2025 Elsevier Ltd.