Study on house affordability of urban households in China

Abstract

As theory suggested, urban residents' income should maintain a stable ratio with house price. The recent years, however, the growth of house price is much higher than the growth of income in China, resulting in house affordability problem. This paper, based on China's quarterly time-series data from 1994 to 2006 and applying methods of co-integration test, Granger causality test and error correction model (ECM), makes an empirical analysis of the long-run equilibrium relationship between house price and income. It is shown from the results of the empirical analysis that there is the evidence of long-run equilibrium relationship, meaning that the deviation of these two series could be temporary.