Housing Costs and Real Income Differences across Chinese Cities

We document variations in real income for high-skilled, low-skilled, and rural migrant households across Chinese cities. Using comprehensive data on land parcel transactions along with individual data for land development and household expenditure, we construct a city-specific housing cost index and assess how it varies across locations. All three components of housing costs –unit land prices, land share in construction, and housing share in expenditure– decrease from city centres to the periphery, increase with city population, and decrease with city land area, as predicted by theory. Overall, housing costs in China are high and vary widely between locations. While income gains outweigh housing costs when moving from smaller to larger cities, in the largest cities, housing costs begin to dominate, particularly for low-skilled and rural migrant households. This suggests a bell-shaped relationship between real income and city population in China, aligning with theoretical predictions.