A Mechanistic Study of the Coexistence of High House Prices, Low Income, and High Homeownership Rates in China

An important feature of China’s housing market is the coexistence of a high house-price- to-income ratio and high homeownership rates. The purpose of our study is to reveal the root causes of this paradox from a new perspective and theoretical foundation. Based on questionnaire data from Hangzhou and logistic regression models, our research finds that the most important factors driving middle and lower-income groups to buy homes are its unique household registration and school district housing system, underdeveloped housing rental market and inadequate regulatory system, and the wealth appreciation effect caused by the continued rise in housing prices. Furthermore, intergenerational wealth transfers, private lending, and China’s generous home mortgage policies have made homeownership possible for this groups. However, the high house-price-to-income ratio leads to heavy financial pressure on the middle- and low-income groups and is not conducive to sustainable and healthy economic development. To this end, we suggest that the government accelerate the equalization of public services, improve the regulatory system governing the rental housing market, and control the unreasonable rise in housing prices and diversify investment channels for residents.