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Cross‐city spillovers among housing markets are usually modelled by the classical spatial autoregressive models, which usually suffer from identification problems in practice. This paper investigates the cross‐city house price spillovers arising from city network externalities wherein a city's connections with other cities in the urban network create the external house price premium through productivity and amenity gains. Using a cross‐sectional data set for an urban system in eastern China, we present significant evidence for positive network spillovers by the application of spatial lag of X model and spatial Durbin error model. Besides, common shocks are also proved to be responsible for cross‐city dependence of house prices. [ABSTRACT FROM AUTHOR]