Factors Affecting Housing Prices in China and

Their Contributions

Introduction

The healthy development of the real estate market has important implications for the stability of a
country's society and economy. Within the real estate market, housing prices are an important
indicator (Yang Hui & Li Chao, 2019). Many scholars have extensively researched the complex
and multidimensional factors affecting housing prices. However, articles from different countries
and languages have different focuses on these factors(Na Li et.al, 2022), which has led this article
to an interest in exploring the factors affecting housing prices in China. China's real estate market
became fully marketized in 1998 and since 2003, housing prices have significantly and
continuously risen, leading to increased attention from domestic scholars and the emergence of
numerous theories on the factors influencing housing prices(Yang Hui & Li Chao, 2019).

However, the complexity of this issue has led to varying research results due to differences in
researchers' focuses and methods. Therefore, this literature review aims to provide a
comprehensive framework of current research on factors affecting housing prices in China
and to identify current research limitations. Considering the timeliness and reference value for
future research, the literature selected for this review consists of academic papers published in
the last decade (from 2013 to 2023).

The article’s structure is: 1) summarize comprehensive studies on Chinese housing price
factors; 2) summarize specialized studies on individual factors; 3) propose bi-directional
impacts between factors and housing prices; 4) analyze the contribution/importance of each
factor; and 5) identify current research gaps/deficiencies and suggest future research
prospects.
1 Comprehensive studies on factors influencing housing prices

These comprehensive studies aim to collect apparent influencing factors and classify them
according to their commonalities. This type of research is helpful for other scholars or those
interested in this field to quickly and generally understand the influencing factors of China's
housing price. However, due to different starting points and methods adopted by researchers,
the conclusions reached are not always the same.

1.1 Summary from Fundamental Factors

Zhi Wang and Qinghua Zhang (2014) focused on the fundamental factors affecting housing
prices and argued that the fundamentals were the supply and demand relationship. This study
summarized four factors in the supply and demand system: urban population, wage income,
urban land supply, and construction costs. The results showed that in most cities among the 35
sample cities, changes in the four factors had significant impacts on the increase in housing
prices. However, in a few cities, their impacts were inconsistent with expectations.

1.2 Summary from the macroeconomic situation

Hong Zhang et al. (2016) argued that there are three fundamental variables in
macroeconomics, namely interest rates, inflation, and macroeconomic growth, which are
closely related to housing prices. At the same time, since the real estate market in different
levels of Chinese cities varies significantly, it is necessary to distinguish between first-tier,
second-tier, and third-tier cities for analysis. The conclusions drawn are:
(1) An increase in interest rates has a significant negative impact on housing prices;
(2) The impact of inflation on housing prices may be either negative or positive;
(3) Macroeconomic growth has a positive impact on housing prices.

1.3 Summary from empirical results

Wanli Yang (2022) extracted four main factors affecting Chinese housing prices based on
empirical results: resident population, land value, government fiscal revenue, and developer
investment. The causal relationship between these factors and housing prices was analyzed
using empirical research, with results showing that 1% increase in resident population leads to
a decrease in housing prices by approximately 16%, while 1% increase in land value leads to
a rise in housing prices by about 38%. Housing prices also rise by 6% for every 1% increase
in housing investment, and the typical pattern of government increasing fiscal revenue is to
raise land sale prices, which in turn raises housing prices.

1.4 Summary using a systematic review approach

Na Li et al. (2022) searched the CSCD and CNKI.NET databases for studies on factors
influencing housing prices in China, categorizing them into four areas: economic, social,
administrative, and environmental factors. Their systematic review found that as unique
factors, government investment and macroeconomic control (administrative factors) have
been relatively neglected in English literature compared to Chinese articles, despite their
significant impact on housing prices in China.

Although the conclusions drawn from the above studies are not consistent, there are some
common fundamental factors, including urban population, macroeconomic growth,
government investment and sale prices.

2 Single factor studies on factors influencing housing prices

This type of article focuses only on a single factor that affects Chinese housing prices and
provides a detailed analysis of it. Although researchers choose different elements, they can
often be categorized into the same field. In addition to common factors, some researchers
have proposed unique perspectives, such as the impact of urban population migration and the
COVID-19 pandemic on Chinese housing prices.

2.1 Research in the field of supply and demand relations

(1) Supply side
On the supply side, Xueliang Liu (2014) investigated the impact of China's housing supply
elasticity on house prices and found that it had a strong explanatory power for the growth rate
of house prices. The two most influential indicators were the density of economic activity per
unit of land and local government regulation of housing development. Similarly, Hui Yang
and Chao Li (2019) also considered housing supply as an important factor affecting house
prices, with the specific indicator being the completed area of real estate development.

(2) Demand side

On the demand side, Wangying Lu and Jianfu Shen (2022) found that high urban leverage
leads to greater liquidity risk and affects housing demand and ultimately impact housing price,
while Kunqiu Chen et al. (2020) argued that the process of capital deepening pushed up urban
housing prices, in part due to the housing demand. Jing Lu and Lu Liu (2020) suggested that
gender imbalance increased housing demand, which led to substantial increases in housing
prices. Hui Yang and Chao Li (2019) also regarded housing demand as an important factor
influencing housing prices, with specific indicators including the per capita disposable
income of urban residents and expectations of housing price increases.
2.2 Research in the field of government policy
Meiting Hu et al. (2021) found that the impact of land finance on housing prices varies in
cities with different levels of urbanization. On average, for every 1% increase in land finance,
housing prices in cities increase by 0.18%, with an increase of 0.06% in low-urbanized cities
and an increase of 0.38% in high-urbanized areas.
Meanwhile, Ren Wang and Jie Hou (2021) suggest that China's discriminatory land policy has
a significant impact on housing prices. The land investment policy has resulted in lower costs
for industrial land in China, while land finance policies have created high costs for residential
land, ultimately leading to an increase in housing prices.

2.3 Research in the remaining areas

Xin-Rui Wang et al. (2017) studied the impact of population migration on housing prices,
including migration between regions and from rural to urban areas. The empirical results
show that a 1% increase in the number of cross-regional and rural-to-urban migrants leads to
a 0.701% and 0.343% increase in housing prices, respectively.
Xianhang Qian et al. (2021) found a negative impact of confirmed COVID-19 cases on
housing prices during the pandemic. When a community has confirmed COVID-19 cases, its
housing prices decrease by 2.47%, and the negative impact can last for up to three months.

3 Analysis of mutual influence factors

There exist some factors whose effects on house prices are not unidirectional, but have a
two-way causal relationship with house prices. These factors have been less mentioned in the
field of house price research. In this paper, we have selected two more authoritative articles
which study the relationship between house prices and land prices, and the relationship
between house prices and money supply, respectively.

3.1 Interaction of house price and land price

Haizhen Wen and Allen C. Goodman (2013) summarized the academic debate on the
relationship between housing prices and land prices, identifying three viewpoints: the
cost-driven view, the derived demand view, and the reciprocal causation view. These
discussions have yet to yield a consensus answer.
Using a system of simultaneous equations, Wen and Goodman found that there is a mutual
interaction and endogenous relationship between the two, with both having positive
interaction effects. However, overall, housing prices have a greater impact on land prices than
vice versa.

3.2 The causal relationship between house prices and money supply
Chi-Wei Su et al. (2019) used a time-varying rolling window approach to test the reliability of
existing dynamic equilibrium models in relationship between house prices and money supply.
The study showed that assuming structural changes are considered, the long-term relationship
is not stable. However, in different sub-periods, a significant rise or fall in house prices can
have negative or positive effects on monetary supply, and fluctuations in monetary supply can
have a positive effect on house prices. This indicates that the relationship between them will
change over time.

4 Analysis of the importance weight of influencing factors

Unlike the above-mentioned comprehensive or single-factor analysis of house price

influencing factors, some scholars focus on the ranking of the contribution of each
influencing factor. This type of research aims to identify the most influential factors that
contribute to the subsequent stability and prosperity of the real estate market.

4.1 Housing supply, housing demand and housing market

Yang Wang et al. (2017) summarized these three main frameworks. Results from spatial
regression models and geographic survey techniques indicate that land cost has the greatest
impact on housing prices, which suggests that housing supply is the most significant factor. In
second place is the housing market, which includes the proportion of renters and buyers. The
least important factor is the demand-side framework, including factors such as resident
income and the number of migrants,

4.2 Housing supply, demand expectations, land market and macro environment
Hui Yang and Chao Li (2019) assigned seven evaluation indicators to these four categories of
influencing factors. Through multiple regression analysis, the authors found that the land
market indicator - land price, the housing demand indicator - demand expectation, and the
macro-environment indicators - stock prices and loan interest rates, when combined,
accounted for 97.5% of the explanatory power for house prices, while the remaining
indicators accounted for only 2.5%.

4.3 Land finance, investment promotion and other factors

Ren Wang and Jie Hou's (2021) study shows that the "price discrimination" brought about by
China's land finance and investment attraction policies has become the most important factor
affecting residential land prices, accounting for 39.01% of the total, and greatly affecting
housing prices by influencing land prices. In addition, monetary policy only accounts for
24.89% of the influencing factors. Labor preferences and housing preferences account for
14.45% and 9.26%, respectively.
5 Shortcomings of the existing studies
Existing research on the factors influencing house prices in China has been relatively well
developed, but there are still some shortcomings and research gaps.

5.1 Insufficient research on the classification of different periods

As a rapidly developing country with rapidly changing market trends and policies, China's
house price influencing factors should vary from period to period, and although there has
been more mention of individual cities and different levels of cities in existing studies, not
enough attention has been paid to house price changes and changes in house price influencing
factors over time.

5.2 Insufficient analysis of short-term impacts and long-term impacts

The impact of either a combination of factors or a specific single factor on Chinese house
prices may differ between short-term effects and long-term lasting effects. Most of the
existing literature stops short of confirming the influence of this factor, but does not provide
more insight into the duration and pattern of its impact.

5.3 Lack of research on informal housing

The literature collected so far is all about the price of commercial housing, but there is no
systematic and detailed study on the price of informal housing, which is an important type of
housing in urban development. Also, there is no literature on whether and how informal
housing affects the price of formal commercial housing.

Conclusion and Prospect

This review covers the research on factors affecting housing prices in China over the past
decade, including comprehensive studies, single-factor studies, interaction studies, and
contribution ratios studies. Dozens of factors are involved, and there are no completely
consistent research results, highlighting the complexity of the housing price issue in China.
Housing prices are of great significance to the social and economic development, and the
analysis of influencing factors can identify problems and promote sustainable development.

This article points out the limitations of current research on factors affecting housing prices in
China and proposes potential research directions. Specifically, more stage classification
research and short-term and long-term impacts studies should be conducted. Additionally,
focus more on informal housing, which is often overlooked. Finally, as the housing system
involves many aspects, finding valuable research directions to provide practical help for
people's livelihood and economic development is also very important.
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