High Housing Prices but Low Income: Explaining the Paradox of High Homeownership Rates in Chinese Cities

An important feature of China's housing market is the coexistence of high house price to income ratios and high homeownership rates, especially in several first-tier cities where house price to income ratios far exceed normal affordability. Based on questionnaire data from Hangzhou, China, and logistic regression models, our study finds that the most important factors driving the middle- and low-income groups to buy houses in China are: first, China's unique household registration and school district housing system, which leads parents who place special emphasis on education to buy houses in the city by all means; and second, the continuous rise in housing prices, which leads to a surge in investment demand and passive home purchase demand. The reasons why the middle and low income groups can afford the cost of home purchase are: first, China's unique kinship culture, where relatives and friends lend to each other to solve their down payment problem for home purchase; second, China's housing mortgage lending policy is more relaxed, and the middle and low income groups can easily obtain financial support for home purchase; third, China's economy continues to grow, and the real and expected income of the middle and low income groups keeps increasing, which guarantees the mortgage loan repayment ability. 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 implement a policy of equal rights for rent and purchase as soon as possible to promote the development of the rental market and expand investment channels for residents.