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

Does China face a housing affordability issue? Evidence from 35 cities in China 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Housing Markets and Analysis Emerald Publishing

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

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Publisher
Emerald Publishing
Copyright
Copyright © 2012 Emerald Group Publishing Limited. All rights reserved.
ISSN
1753-8270
DOI
10.1108/17538271211243607
Publisher site
See Article on Publisher Site

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.

Journal

International Journal of Housing Markets and AnalysisEmerald Publishing

Published: Jul 27, 2012

Keywords: Housing affordability; User cost; Housing price; Income; China; Housing

References