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Evaluating conditions in major Chinese housing markets

Author

Listed:
  • Wu, Jing
  • Gyourko, Joseph
  • Deng, Yongheng

Abstract

High and rising prices in Chinese housing markets have attracted global attention. Price-to-rent ratios in Beijing and seven other large markets across the country have increased by 30% to 70% since the beginning of 2007. Current price-to-rent ratios imply very low user costs of no more than 2%–3% of house value. Very high expected capital gains appear necessary to justify such low user costs of owning. Our calculations suggest that even modest declines in expected appreciation would lead to large price declines of over 40% in markets such as Beijing, absent offsetting rent increases or other countervailing factors. Price-to-income ratios also are at their highest levels ever in Beijing and select other markets, but urban income growth has outpaced price appreciation in major markets off the coast. Much of the increase in prices is occurring in land values. Using data from the local land auction market in Beijing, we are able to produce a constant quality land price index for that city. Real, constant quality land values have increased by nearly 800% since the first quarter of 2003, with half that rise occurring over the past two years. State-owned enterprises controlled by the central government have played an important role in this increase, as our analysis shows they paid 27% more than other bidders for an otherwise equivalent land parcel.

Suggested Citation

  • Wu, Jing & Gyourko, Joseph & Deng, Yongheng, 2012. "Evaluating conditions in major Chinese housing markets," Regional Science and Urban Economics, Elsevier, vol. 42(3), pages 531-543.
  • Handle: RePEc:eee:regeco:v:42:y:2012:i:3:p:531-543
    DOI: 10.1016/j.regsciurbeco.2011.03.003
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    References listed on IDEAS

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    1. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1253-1296.
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    More about this item

    Keywords

    Housing markets; House prices; Land prices; China;

    JEL classification:

    • P22 - Economic Systems - - Socialist Systems and Transition Economies - - - Prices
    • P25 - Economic Systems - - Socialist Systems and Transition Economies - - - Urban, Rural, and Regional Economics
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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