Homeownership in urban China: an empirical study of borrower characteristics and the Housing Provident Fund program in Kunming
| Date | 06 August 2018 |
| Pages | 318-339 |
| Published date | 06 August 2018 |
| DOI | https://doi.org/10.1108/JABS-03-2016-0041 |
| Author | Weizhuo Wang,Christopher Gan,Zhiyou Chang,David A. Cohen,Zhaohua Li |
| Subject Matter | Strategy,International business |
Homeownership in urban China: an
empirical study of borrower characteristics
and the Housing Provident Fund
program in Kunming
Weizhuo Wang, Christopher Gan, Zhiyou Chang, David A. Cohen and Zhaohua Li
Abstract
Purpose –This paper aims to develop and estimatea logit model of whether homeownershipcould be
promoted by participation in and use of the Housing Provident Fund (HPF) program, with a focus on
factorsthat influence the use of HPF loans.
Design/methodology/approach –This paper develops and estimates a logit model of whether
homeownership could be promoted by participation in and use of the HPF program, with a focus on
factorsthat influence the use of HPF loans.
Findings –The results show that coefficients of marital status, educational level, age, duration of
employmentand employer are significantlyrelated to the use of HPF loan for homeownership.
Research limitations/implications –Because of the chosen researchapproach, the research results
may lack generalizability.
Practical implications –The research findings provide a better understanding of homeowners’
characteristics.
Originality/value –To manage the HPF program effectively, it is important for government to have a
better understanding of the underlying demand for homeownership, especially with respect to the
differentdemographic variables and accessibilityto HPF loansand the HPF.
Keywords Homeownership, Logistic Regression, Housing providentfund, Loan accessibility
Paper type Research paper
1. Introduction
Over the past 20 years, China’s housing policy has moved away from a traditional welfare
orientation to a monetized allocation system. This system has been designed to encourage
people to become homeowners (Burell,2006). To accomplish this, the Chinese Government
abolished the housing welfare system completely in 1998 to stimulate domestic housing
consumption, with the responsibility of housing provision largely transferred from the state
to the market (Chen and Deng, 2014). Five major housing policies were developed:
co-ownership of housing responsibilities, the Housing Provident Fund (HPF hereafter),
introduced in 1991 as a cornerstone program, socialization and professionalization of
housing management, the selling of former public rental housing to sitting tenants and an
increase in housing for middle- and low-incomegroups (Lee, 2000).
Rising house prices in China have led to significant reduction in the affordability of homes
for most Chinese (Lau and Li, 2006;Wu et al., 2012). Fang et al. (2015) claimed that the
housing price average annual real growth rate reached 13.1 per cent and 10.5 per cent in
the first-tier and second-tier cities, respectively, for the period of 2003 to 2013. The Chinese
Weizhuo Wang is Dr at the
International Business
School, Dalian Nationalities
University, Dalian, China.
Christopher Gan is
Professorat the Department
of Accounting, Eco nomics,
and Finance, Lincoln
University, Chr istchurch,
New Zealand.
Zhiyou Chang is Professor
at the Yunnan Normal
University Business School,
Kunming, China.
David A. Cohen is Dr at the
Departmentof Management
and Marketing, Lincoln
University, Chr istchurch,
New Zealand.Zhaohua Li is
Dr at the Faculty of
Financial and Business
Systems, Lincoln
University, Christchurch,
New Zealand.
Received 13 March 2016
Revised 20 July 2016
11 October 2016
10 January 2017
Accepted 9 March 2017
PAGE 318 jJOURNAL OF ASIA BUSINESS STUDIES jVOL. 12 NO. 3 2018, pp. 318-339, ©Emerald Publishing Limited, ISSN 1558-7894 DOI 10.1108/JABS-03-2016-0041
Government therefore alteredits housing policy to more tightly focus on affordability for new
home buyers, amongst other schemes intended to help more people find decent place to
live. Thus, China’s housing policy focused on enhancing affordability in the purchase of a
new house. The term “housing affordability” is used to summarize the difficulties households
face in accessing adequate housing loans (Hulchanski, 1995). Mak et al. (2007) defined
affordability as the ratio of the property value over an individual’s annual gross income,
using the 2.5 ratio established by Freddie Mac as a benchmark. However, the ratio
reflected in actual loan acquisitions has varied greatly among cities in China. For example,
the average price for a standard-sized (60 m
2
) apartment in Beijing was about 1.07 m RMB
in 2010. The affordability ratio at the time was15.7, indicating that an individual would need
15.7 years to purchase the apartmentoutright with their annual income. The same standard
sized apartment (60 m
2
) was worth 0.24m RMB in 2010 in Chongqing, representing a price
to household annual gross income ratioof 6.2 (National Bureau of Statistics of China, 2010).
In the shift to a more socialist market type housing economy, the government instituted
policy changes that included the introduction of various kinds of subsidies. One such
subsidy program was the HPF. Investing heavily, the government emphasized construction
projects specifically designed to provide a greater number of comfortable, affordable
homes (Duda et al.,2005). In addition, it created the Cheap Rent Housing (CRH) program
with the aim of helping people earning lower incomes find decent, reasonably priced rental
accommodations (Zhang and Rasiah,2016).
The HPF is a long-term housing-focused fund, with deposit collected from employers and
their employees. During their employment, both individuals and their employers pay
contributions into the fund as a percentage of the employees’ salaries (Deng et al.,2009).
The fund is owned by the individuals and managed under the regional housing provident
management committee. The HPF is a core component of China’s housing reform policy
aiming to improve the level of urban housing affordability without requiring a state subsidy
(Zhang and Rasiah, 2014). By 2012, the number of HPF contributors reached 102 million
with a collected total of 5.04tn RMB in savings and an outstanding HPF loan total of 1.67tn
RMB (Chen and Deng, 2014).
A number of studies have examined China’s HPF scheme. Li and Yi (2007) relied on
descriptive statistics to document that the proportion of households using the HPF to
purchase a house is low. Yeung and Howes(2006), however, discussed the role of the HPF
in financing the development of affordable housing in China, concluding that it was a useful
and effective mechanismfor boosting homeownership. Chen and Deng (2014) reviewed the
history of China’s HPF program and compared China’s experiences with the HPF-type
practices in other countries and discussed the challenges that China’s HPF program still
faces. Zhang and Rasiah (2016) used Shandong province as an example to illustrate the
intermediary role of provincial government in implementing central government-initiated
affordable housing policiesin urban China. Thus, the views of the HPF have been somewhat
mixed, with some arguing that it is effective in increasing homeownership, whereas others
arguing that there are significant challenges it must contend with, namely, efficiency and
equity. These studies have used aggregate data at the city or provincial level to evaluate
the HPF scheme. None of them have applied econometric methods to analyze the
relationship between HPF participation and homeownership, nor to identify the factors that
influence the use of HPF loans. Thus, they were not able to determine whether the relatively
poor performance of the HPF that Li and Yi refer to is due to the failure of the market or of
government, presentinga question that could benefit from further scrutiny.
Although the HPF is one of the key governmental policy instruments for addressing
homeownership-related issues in urban China, to the best of our knowledge, few studies
have empirically evaluatedthe determinants of fund utilization. To this effect, thisstudy uses
data at the household level to evaluate the HPF scheme and document to what extent the
HPF scheme is linked to market failure or government failure. Introducing a government
VOL. 12 NO. 3 2018 jJOURNALOF ASIA BUSINESS STUDIES jPAGE 319
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