Market transition and housing commodification in urban China

Abstract

Average house prices in China over the last two decades to 2009 have increased at an annual rate of 11 percent. At the same time, the housing market has undergone a transition from socialist planned system to one where prices are determined through the interaction between supply and demand. The spectacular property boom in China over the past decade has been influenced by a myriad of factors – some of which are investigated in this thesis. This thesis is that the contemporary housing market is driven more by market forces than the remnants of a past when planning and political patronage took centre stage (discussed in Chapter 3). Further evidences are gleaned from econometric implementation of a fixed effect panel model that incorporates determinants on the demand and the supply side: the estimated model explains 85% of the changes in housing prices for the period 1998 to 2011 (discussed in Chapter 4). A special phenomenon “mother-in-law” effect in China which has the largest statistical impact on housing prices has also been investigated (discussed in Chapter 5). In big cities such as Beijing, the estimates from a rational expectation model shows that housing prices deviate significantly from market fundamentals, suggesting the existence of price-bubbles (discussed in Chapter 6). Finally, a qualitative analysis of data collected from a purpose-designed and administered survey corroborates the afore-mentioned findings (discussed in Chapter 7). The findings of the study have important policy implications for China (discussed in Chapter 8). First, the decreasing number of impending marriages will, ceteris paribus, dampen future housing demand. Second, evidences of a housing-bubble in Beijing calls for policy interventions. Evidence of their success, however, is limited. These empirical findings based on the household-level survey data drawn for the Peoples’ Republic of China (PRC) and for Beijing city have lessons for China and similar nations undergoing a transition from planning to market systems.