Is Residential Housing Affordable? An Improved Price-to-Income Ratio Approach

Abstract

Although China's housing affordability issue has been the subject of numerous studies, this paper adopts an improved price-to-income ratio to better reveal and assess the status of housing affordability in China over time. Two research questions will be discussed: (i) Is there a housing affordability problem? (ii) Does the situation of housing affordability improve or worsen over time? Regarding the first question of whether there is a housing affordability problem, down payment ratio and years of installment will be examined, subject to regulation changes for home mortgage loan over time. Regarding the second question of whether the situation improves or worsens, different income categories are classified for comprehensive analysis. The statistical and analytical results have policy implications concerning the nature, extent and duration of housing subsidies, which have been emphasized by government’s guideline (13 April 2010, State Official Document No. 2010-10). Housing subsidies in terms of providing affordable or low rent housing is not effective or efficient to meet the needs of sheltering the poor. Relaxing entry access to bank loans is still of little value, as it renders substantial default risks. An adequate alternative is the adoption of heavily levied property tax, in particular targeting at the upper higher or highest income groups.