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The effect of the housing provident fund on housing affordability in Urban China: A quantitative analysis

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  • Chen, Mengkai
  • Liu, Tong
  • Wang, Xianzhu

Abstract

Demand-side housing subsidy schemes have been widely adopted in many countries to improve housing affordability, but quantitative investigations of the policy effect are still rare. This study evaluates the effect of the Housing Provident Fund (HPF), the largest demand-side housing subsidy scheme in the world and under hot debate, on housing affordability in mainland China. We construct a comprehensive housing affordability (CHA) indicator by considering both down payments and monthly payments to reveal the potential pass-through effect. Taking 2020 as an example, we find that the HPF increased housing affordability by 50.54% on average when assuming that down payment affordability (DPA) and monthly payment affordability (MPA) are equally important. The subsidized interest rate and withdrawn balance can compensate for the increased HPF loans transferred from the lower required down payment. Notably, the impact is concentrated in cities where households have favourable housing affordability even without the HPF. Further simulations show that potential reforms of the HPF cannot solve housing unaffordability problems in superstar cities. This study highlights the divergence in the effects of the HPF between types of cities, and it provides a reference for the ongoing reform of the HPF.

Suggested Citation

  • Chen, Mengkai & Liu, Tong & Wang, Xianzhu, 2024. "The effect of the housing provident fund on housing affordability in Urban China: A quantitative analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 93(C), pages 1-11.
    • Handle: RePEc:eee:quaeco:v:93:y:2024:i:c:p:1-11
    DOI: 10.1016/j.qref.2023.11.003
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    More about this item

    Keywords

    Demand-side housing subsidy; Housing provident fund; Housing affordability; Policy evaluation; China;
    All these keywords.

    JEL classification:

    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • G50 - Financial Economics - - Household Finance - - - General

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