An empirical analysis of homeownership in urban China
| Date | 20 December 2013 |
| Published date | 20 December 2013 |
| Pages | 1-17 |
| DOI | https://doi.org/10.1108/JABS-01-2012-0005 |
| Author | Christopher Gan,Baiding Hu,Cindy Gao,Betty Kao,David A. Cohen |
| Subject Matter | Strategy,International business |
An empirical analysis of homeownership in
urban China
Christopher Gan, Baiding Hu, Cindy Gao, Betty Kao and David A. Cohen
Abstract
Purpose – This paper seeks to investigate the impact of socioeconomic factors of homebuyers such as
gender, age, marital status, education, economic status and race on home ownership and loan
decisions in urban China.
Design/methodology/appro ach – This pape r employs logistic regression to investigate the
socioeconomic factors affecting the consumers’ house purchase decision in urban China and the
factors affecting the housing loan application.
Findings – Using a structured questionnaire to collect relevant data from household residents (both
homeowners and non-home owners) in Nanjing in 2010, the findings document that male respondents
who are non-minorities and have higher levels of education are more likely to purchase a house. The
results also show that race, educational attainment, size of household and credit card ownership are
significantly related to rejection for a housing loan.
Research limitations/implications – The findings in this paper provide homebuyers with a better
understanding of factors affecting the housing loans and their decision to purchase a house.
Homebuyers can accurately assess their financial ability and improve the use of their creditto purchase
a house. In addition, Chinese homebuyers should be encouraged to save since savings serve as a step
in building their credit worthiness; therefore, their accessibility to housing loans can be improved and the
rate of homeownership will be increased as well.
Originality/value – This research would benefit both lender and borrowers. The research findings
provide banks with a better understanding of homebuyers’ characteristics that influence their
accessibilities to housing loans. Homeownership requires affordable housing financing. Banks should
consider repackaging their home loan products to make them more attractive to those with limited
means. Such products should focus on making loans more affordable in real terms. First-time
homebuyers are almost always young and earn low incomes.
Keywords House price, Loans, Logistic regression, Home ownership
Paper type Research paper
1. Introduction
Housing prices in China have increased over the past few years. The National Bureau of
Statistics of China (2009) reported that the growth rate in the average price of houses in
urban China increased from 1.1 percent to 6.5 percent in the years between 2000 and 2008.
By the end of 2009, it rose to 7.8 percent, a figure higher than the previous year.The potential
explanations for the surge in housing prices include rapid economic growth, population
increase, liberalization of the housing market, and an inadequate supply of affordable
housing (Chung et al., 2004). Moreover, in order to benefit from inflation as housing prices
escalated, speculation on China’s residential property market was considered to be a
consequence of the persistent increase in housing prices (Yang and Shen, 2008)., Yan et al.
(2010) and Yu (2010) suggested that the that scarcity of land was another factor in rising
house prices. By the end of 2009, new house prices in Guangzhou, Shenzhen and Beijing
increased by 19.9 percent, 14.3 percent and 13.2 percent, respectively (National Bureau of
DOI 10.1108/JABS-01-2012-0005 VOL. 8 NO. 1 2014, pp. 1-17, QEmerald Group Publishing Limited, ISSN 1558-7894
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Christopher Gan is
Professor and Baiding Hu is
a Senior Lecturer both in the
Department of Accounting,
Economics and Finance,
Faculty of Commerce,
Lincoln University,
Canterbury, New Zealand.
Cindy Gao is a Banker at
Corporate Banking, Bank of
Shanghai, Shanghai, China.
Betty Kao is a Market
Research Analyst based in
Kaohsiung City, Taiwan.
David A. Cohen is an
Associate Professor in the
Department of
Management and
Marketing, Faculty of
Commerce, Lincoln
University, Canterbury, New
Zealand.
JEL classification – G10, G20,
G21
Statistics of China, 2009), indicating an overheated housing market. Tightening measures
were implemented by the government in order to control the market and cool down house
prices in urban China. Measures introduced by the government included an increase in the
minimum deposit required for housing purchases to 50 percent for second-home buyers,
with an increase in the mortgage interest rate of 10 percent and the introduction of a housing
property tax (Heap, 2010).
With rising house prices, China’s housing policy focused on affordability in purchasing a
new house. The term ‘‘housing affordability’’ is used to summarize the difficulties that a
household faces when accessing adequate housing loans (Hulchanski, 1995). China
Daily (2004) reported that prices for residential housing in Beijing were between 7,000
renminbi (RMB) and 8,000 RMB per square meter A 60 square meter standard
apartment would thus cost between 420,000 and 480,000 RMB where residents earn on
average only about 100,000 RMB annually. In contrast, in Shanghai, the mean price for
the same standard apartment was 273,180 RMB in 2003, with an affordability ratio of
13.6. This indicates that it would take an individual 13.6 years to purchase the
apartment outright.
A number of studies have examined housing affordability in urban China (e.g. Chen et al.,
2006; Rosen and Ross, 2000, Liu and Shen, 2005). Some researchers have focussed on the
determinants of house prices with respect to changes in economic fundamentals and
housing policies in China (Liu and Shen, 2005; Yu, 2010; Yan et al., 2010). Others have
examined homeownership-oriented housing schemes, such as Housing Provident Funds
and Economic Affordable Housing (Burell, 2006) policies. However, there is a limited number
of studies addressing the socioeconomic factors influencing consumers’ housing purchase
decisions and the accessibility to housing loans that can significantly affect the level of
homeownership in urban China. A study by Deng et al. (2004) concluded that housing loans
are crucial to the development of the housing market in China.
It is clear that greater accessibility to housing loans positively affects house purchase
decisions. It is also known that personal income is an important factor influencing
homeownership in China. Huang and Clark (2002) reported that changes in household
income impact homeownership as well. People with higher incomes can access housing
loans much easier. However, in recent years, surging housing prices in urban China have
made it more difficult for people to finance house purchases. This is especially true for
people in larger cities such as Beijing, Shanghai and Shenzhen. Household income and
housing prices, however, are not the only factors that influence rates of homeownership.
This paper investigates the impact of socioeconomic factors such as gender, age, marital
status, education, economic status and race on homeownership and housing loans in
urban China.
The balance of the paper is organized as follows. Section 2 is the literature review on
characteristics affecting consumers’ housing purchase decision and factors affecting loan
approvalz. Section 3 outlines the method and describes the data. Section 4 presents and
discusses the results. Section 5 offers concluding remarks.
2. Characteristics affecting consumers’ housing purchase decisions
The literature reveals that income is the single most important factor influencing a home
purchase decision (Huang and Clark, 2002; Fisher and Jaffe, 2003). An increase in the level
of household income could positively influence the consumer’s home purchase decision.
Huang and Clark (2002), and Constant et al. (2009), have noted that as a proxy of household
wealth, home ownership increases with household income; a higher household income is
more likely to cover the potential costs incurred by home ownership.
Gender of the head of household is also a factor that affects the decision to purchase a
house. By using data disaggregated into primary and secondary housing demand in
Spain, Manrique and Ojah (2003), found that males are more likely to commit to buying a
house. Lauridsen and Skak (2007) also concluded that males often have relatively higher
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