Property Prices and Housing Affordability in China: A Regional Comparison

Abstract

This study explores two issues related to China's property market dynamics. First, it examines how regional property price disparity is caused by space and capital market differentials, based on the Four-Quadrant Framework. With the panel data fixed effect model of 35 major cities from 2002 to 2012, it integrates regional factors, or the economic and demographic conditions in Quadrant I, into the Four-Quadrant framework. The empirical results suggest that in the coastal cities the capital market plays a bigger role in determining housing price while in the inner cities, the space market plays a bigger role. Second, the housing affordability indicator is modified by considering the impacts of household disposable income and urban population density on households' ability to purchase a home, which is in line with the first issue, to integrate economic and demographic conditions into investigating housing price dynamics. Comparing regional disparity, the eastern cities have higher housing affordability conditions than the central and western cities. The main reason is that the eastern cities have attracted human capital inflow from the central and western regions, resulting in a clustering effect for the coastal regions and a hollowing-out effect for the inland regions. The analysis has implications for investors and the government.

Bubbles or Cycles? Housing Price Dynamics in China’s Major Cities

“…The increasing total number of cities having housing bubbles from 2014 to 2016 may be due to the relaxation of home purchase quota in China (Li & Xu, 2016). Previous studies have demonstrated that cities in the eastern region have more housing pressures than those in the western regions, due to the demographic clustering effect for the coastal regions and the hollowing-out effect for the inland regions' population movement (Li, Xu, & Chiang, 2014;Choy & Li, 2017). The findings also echo previous literature that eastern regions have more severe housing bubbles (Dreger & Zhang, 2013).…”

Do House Prices and Marriages Move together in China?

“…Results detect that HP do Granger cause the MR in the Central region. It is an agricultural and populated province, the origin of migrant to the first-tier provinces (Li et al, 2014). Henan is one of the provinces where extravagant spending has incurred on MR. As compared to the national level, the average income is lower, and some people borrow to get married.…”

“…Li and Chand (2013) state that MR contributes a significant part in the housing demand and without housing, marriage is considered incomplete. Li et al (2014) analyze the property prices and housing affordability and reveal that homeownership is prerequisite of MR. Yu and Xie (2015) detect that higher HP is associated with early entry into MR and vice versa. Li and Song (2016) have explored the nexus between HP and MR on the country level and has ignored the regional dimension which may vary across the different regions.…”

Do house prices squeeze marriages in China?

“…Wei et al (2012) address the perceived status symbol of housing and its significant role in attracting a partner for MR. Li and Chand (2013) show that MR is a meaningful factor in housing demand and is considered incomplete without housing. Li et al (2014) inspect housing prices and affordability and find that homeownership is necessary for MR. Yu and Xie (2015) find that higher HPs are associated with early entry into MR and vice versa. Li and Song (2016) discuss the different reasons, including economic, social and cultural, for the dramatic increase in HPs and the decline in housing affordability.…”