Does China face a housing affordability issue? Evidence from 35 cities in China

Abstract

Purpose

The purpose of this paper is to examine the degree of housing affordability in China's 35 large and medium cities. Furthermore, this paper investigates the relationship between housing affordability and the house prices using data from China's 35 large and medium cities from 1996 to 2007.

Design/methodology/approach

This paper constructed the housing affordability index and classified cities in terms of their housing affordability degree. OLS, unit root test and cointegration test have also been used in the empirical test section.

Findings

The results exhibit that the housing price has played a more important role in housing affordability than household income. Thereby, decreasing housing price is more important than household income to alleviate the housing affordability problem. Meanwhile, housing size has exerted a great impact on housing affordability. Accordingly, developing more affordable houses is an alternative to mitigate the housing affordability issue in China. In addition, it is also found that the housing reform facilitates the housing affordability issue due to the low sale price of the public houses; the population growth rate and geographic locations have no significant impact on the housing affordability.

Research limitations/implications

In terms of the research limitations, the heterogeneity factor may be introduced considering the regional heterogeneity of cities in China. Therefore, researchers are encouraged to test the propositions with enriched datasets.

Practical implications

Practical implications are that decision‐makers in government should pay close attention to the risk of the housing bubble. That is, the soaring house price was driven by investment instead of by the demand side.

Originality/value

This paper contributes to defining the dynamic upper boundary of the percentage of housing expenditure to income ratio via Engel's coefficient using the housing market data of 35 large and medium cities in China from 1996 to 2007.

Citation

Kuang, W. and Li, X. (2012), "Does China face a housing affordability issue? Evidence from 35 cities in China", International Journal of Housing Markets and Analysis, Vol. 5 No. 3, pp. 272-288. https://doi.org/10.1108/17538271211243607