Property Prices and Housing Affordability in China: A Regional Comparison

Abstract

Abstract This study explores two issues related to China's property market dynamics. First, it examines how regional property price disparity is caused by space and capital market differentials, based on the Four-Quadrant Framework. With the panel data fixed effect model of 35 major cities from 2002 to 2012, it integrates regional factors, or the economic and demographic conditions in Quadrant I, into the Four-Quadrant framework. The empirical results suggest that in the coastal cities the capital market plays a bigger role in determining housing price while in the inner cities, the space market plays a bigger role. Second, the housing affordability indicator is modified by considering the impacts of household disposable income and urban population density on households' ability to purchase a home, which is in line with the first issue, to integrate economic and demographic conditions into investigating housing price dynamics. Comparing regional disparity, the eastern cities have higher housing affordability conditions than the central and western cities. The main reason is that the eastern cities have attracted human capital inflow from the central and western regions, resulting in a clustering effect for the coastal regions and a hollowing-out effect for the inland regions. The analysis has implications for investors and the government.