House price appreciation and housing policy : a study of housing affordability and tenure choice in China

• Main Author: Yao, L.
• Published: Nottingham Trent University 2018
• Online Access: https://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.757597

The last decade has been witnessed by the rapid development of the Chinese housing system, and this is both a significant element, and a crucial indicator of the entire Chinese economic system. Over the past decades, housing privatisation and commercialisation have transformed the Chinese allocative housing system into a dynamic market-based system. This has accelerated the demand for housing alongside the urbanisation, which has translated into continuous house price appreciation. Consequently, this has led to an aggravation of housing affordability issues, leading to an increasing number of households struggling to enter the homeownership market. Therefore, the central government has issued a number of policy initiatives to minimise the issues of housing affordability, in which comprises the establishment of the housing provident fund (HPF) scheme, the supply of economical and comfortable housing (ECH), and the cheap rental housing. The HPF is a compulsory saving scheme that absorbs monthly deposits and grant low-rate housing debt, aimed at reducing the housing affordability problems encountered by Chinese households. This current research employed macroeconomic, microeconomic and policy variables to capture the factors influencing housing affordability and tenure choice decisions. Macro and micro level data was collected and employed in the empirical models, which is aggregate level model and household level model. The empirical model based upon aggregate level data employed the 2SLS estimation technique, aiming to capture the effects on housing affordability followed by government policy interventions. The household level model examines factors influencing housing affordability and tenure choice decisions by the use of 2SLS and probit technique, and forms a two-reduced forms simultaneous equations model. When conducting the empirical investigation by using the household level model, particular attention was also directed towards regional differences in housing affordability and tenure choice decisions. Furthermore, cross sectional variations in housing affordability and tenure choice decision across different groups were also explored, the data sample was disaggregated into four sub-groups, including location, age, income, and educational achievement. This is achieved based upon a life cycle perspective, incorporating concerns that some households might be liquidity constrained, experiencing difficulties of paying for down payment or entering the homeownership market. The empirical results indicated that housing affordability is influenced by demand and supply side factors, combined with demographic factors and liquidity constraints. The government policy regarding the HPF was found to be effective at reducing the difficulties of housing affordability in both the aggregate level model and the household level model; while also was evidenced to be effective at increasing the likelihood of achieving homeownership in the household level model. Cross sectional variations were captured among different regions and different disaggregated groups, evidencing that the HPF is a promising housing policy with the effect to diminish housing affordability problems, thereby reducing the housing inequality gap.