Determinants of China's Housing Market: An Empirical Analysis

Abstract

China’s housing market has been experiencing significant growth over the last decade and has become one of the government’s key targets for economic growth. Hous- ing policies in regard to urbanization and population control have led to growing inequality. As one of the most important assets in a household’s portfolio, housing plays a role in financial redistribution and the global economy. This paper uses panel analysis and cross-sectional analysis to investigate the forces at work in the Chinese housing market, specifically correlations with price movements. We apply a tested model of housing to the Chinese housing market and use price-to-rent ratio as an effective measure of returns to housing. The results find that in the macroeconomy, the real interest rate is insignificant in determining the housing price-to-rent ratio and growth rates, both GDP and population, are positively correlated with the housing price-to-rent ratio. Additionally, they show that population, a proxy for land share, is of significant importance in determining the price-to-rent ratio, as hypothesized through its effect on housing supply.