By Deng Yusong & Shao Ting

Research Report Vol.21 No.2, 2019

I. Development Stage of China’s Housing Market has changed Dramatically

The continued, massive construction of urban housing since 1998 has improved the housing conditions of China’s urban residents considerably. At the end of the 12th Five-Year Plan period, the number of housing units per urban family household was more than 1.0, indicating a dramatic change in the developing stage of housing market.

First, as there was more than 1.0 housing unit per urban household, the housing shortage was basically solved. According to the 6th national census and housing area data for newly started and completed projects in recent years, the number of housing units per urban family household[]① at the end of 2010 was 0.98, which increased to 1.10 at the end of 2015, or 1.03 if all permanent urban residents are taken into account. As there was more than 1.0 housing unit per urban household, the housing shortage in China was solved in general.

Second, housing area of newly started projects peaked and real estate investment increased at a slower pace. Main real estate indicators, such as investment growth rate and housing area of newly started projects, have successively peaked since 2010. Real estate investment growth peaked (33%) in 2010 and fell to 7% in 2017. Housing area of newly started projects by developers peaked (1.47 billion square meters) in 2011 and fell to 1.28 billion in 2017. In reference to the housing market history of developed economies, housing area of newly started projects would peak when the number of housing units per household reached 1.0, and the situation in China was basically consistent with that in developed economies.

Third, regional differentiation of housing market was more prominent. Owing to the long-lasting short supply of new commodity apartments and the persistent and fast inflow of people, first-tier cities like Beijing and Shenzhen suffer from marked housing supply-demand imbalance and their housing prices increase much faster than in other cities. By comparison, in cities that have too large newly started area, waning dominating industries and slow population inflow or even outflow, the housing prices increase obviously slower than in first-tier cities. Some are even troubled by the pressure of selling the over-high housing stock.

II. Main Factors that will affect Urban Housing Market Development in 2020-2050

In the medium and long term, main factors that will affect the housing market development in 2020-2050 include the following: changing stage and structural adjustment of socioeconomic development, changing quantity and structure of urban population, and adjustment of housing related policies, including financial and land policies.

1. Faster economic restructuring in the stage of high-quality development will exert tremendous impacts on housing supply and demand.The Chinese economy has moved from the stage of high-speed growth to the stage of high-quality development, when it is more obviously driven by the service sector and consumption. In 2017, the value added of the service sector accounted for 51.6% of GDP and consumption 53.6% of GDP. In reference to the evolution of industrial structure at different developing stages in developed countries, the value added of China’s service sector is expected to take up about 53.7%, 63.0% and 70.0% of GDP and consumption about 56.2%, 65.5% and 75.0% of GDP respectively in 2020, 2035 and 2050.

The economic restructuring in the stage of high-quality development will last till around 2050. This means the re-distribution of such factors as labor and land will last a long time too, which will directly affect housing supply and demand. With the falling ratio of manufacturing and rising ratio of service industries, some old industrial land has to be revitalized and can be converted into residential land if that meets specific conditions. Such land will be one of the sources for new residential land, especially land of rental housing. As labor force moves from the industrial sector to the service sector, not only will workers make new occupational choices within cities, but quite a number of them will relocate across cities, which will have a major impact on medium-to-long-term housing demand. In the stage of high-quality development, residents will see continuously increasing income and have much higher requirements on housing quality. Therefore, close attention must be paid to the important impacts imposed by structural adjustment on housing supply and demand during this stage.

2. Changing size and structure of urban population will have substantial impacts on housing demand.From 2020 to 2050, the size and structure of Chinese population will change dramatically, which will exert substantial impacts on housing demand.

First, urbanization rate will rise steadily, but the size of urban population may fall after 2035. Based on the forecast by relevant department, Chinese population will peak around 2030 at about 1,423 million, and the forecast for 2020, 2035 and 2050 is respectively 1,397 million, 1,368 million and 1,270 million. According to international experience and the urbanization progress in China, urbanization rate will reach 60%, 75% and 80% in 2030, 2035 and 2050, when urban population will reach 838 million, 1,026 million and 1,016 million respectively.

Second, the size of urban family households will shrink steadily. While urban population increases, families will get smaller. The number of people per urban family household decreased from 3.20 in 1998 to 2.85 in 2010. In reference to the general pattern of changing family size in developed economies and based on the changing demographic structure in China, the size of family households will keep shrinking steadily before 2050. An urban family household will have 2.75, 2.50 and 2.30 people on average in 2020, 2035 and 2050 respectively (Table 1).

Third, the advantage in age structure has a notable reversion, especially reflected by faster population aging and rising dependency ratio. Rough estimation shows that the percentage of elders aged 60 and above will account for 18.0%, 28.3% and 36.6% of the total population in 2020, 2035 and 2050. The dependency ratio hit bottom[]②(33%) in 2012 but has been rising ever since and is expected to reach 40% in 2020, 50% in 2035 and about 65% in 2050.

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