Factors related to non-primary housing ownership: Evidence from China General Social Survey

Abstract

Housing prices in China have been increasing at high rates over recent years. The average residential housing price has increased from 2,608 yuan per square meter in 2004 to 5,933 yuan per square meter in 2014 (National Bureau of Statistics of China, 2014, 2015). The growth in housing prices significantly exceeded household income growth. In 2013, the average residential house-to-income ratio was nearly 8.5 in major Chinese cities (Feng & Wu, 2015). Such dramatic house price growth and high price-to-income ratio have caused concerns about the formation of a housing bubble (Wu et al., 2012). Economic fundamentals and speculations are two parts contributing to the increasing housing prices. The speculation part is the key reason for housing price bubbles (Hu et al., 2006) as speculators own housing that are not their primary residence. In the present real estate climate, people tend to believe that housing prices will continue to rise. In addition to their primary housing, more and more people tend to purchase multiple properties for a variety of reasons. One obvious reason is that they consider real estate a vehicle for investment that will provide them a higher future return. According to the 2014 China Household Finance Survey (CHFS) report, about 16% of urban households owned more than one housing unit in 2011. The number increased from 19% in 2013 to 21% in 2014 (China Household Finance Survey, 2014). At the macro level, this non-primary housing investment helps the development of an economy. However, Chinese residents purchased housing units as a store of value. Whether current housing prices truly reflect the value of the housing units and the prices are rising too fast do not seem to concern most people. According to Fawley and Wen (2013), the current unusual demand for housing as an investment in China is speculative in nature. When both the household income growth rate and the savings rate begin to decline and the government relaxes capital controls (Fawley & Wen, 2013), the housing bubble will burst and have a negative impact on the economy, such as triggering financial crisis and causing a drag on economic growth. At the micro level, non-primary housing investment affects not only the diversification and performance of household investment portfolios but also the housing inequalities in urban China. In 2014, the top 1% income households owned the overwhelming majority of non-primary housing units (53%). Households who ranked in the bottom 25% still have high demand for primary housing (China Household Finance Survey, 2014). Significant ownership in non-primary housing lead to higher housing price volatility that causes mortgage defaults (Miles, 2008) as well as housing bubbles. Housing bubbles can lower housing affordability for the general population, especially young households (Hou, 2010) and hurt the household investment portfolio when the bubbles burst. Another important reason for purchasing non-primary residence is related to a social norm that groom’s responsibility for providing wedding house. Households with unmarried sons found it is important to improve their son’s competitiveness for marriage. Consequently, this competition for brides causes high demand for houses and leads to high prices in housing market. Homeownership in China is associated with both economic and cultural factors. This makes non-primary homeownership in China difference from other nations. Researchers have studied the housing bubble formation in China (Dreger & Zhang, 2013; Shen et al., 2005; Wu et al., 2012). Factors that affect non-primary housing investment, however, have received little attention. This study analyzes the 2013 China General Social Survey (CGSS) data to investigate factors contributing to non-primary housing ownership in China. Our findings provide insights about ways to help Chinese households avoid making mistakes in their housing consumption and investment portfolio allocation, as well as the importance of expanding financing and investing channels in China.