Homeownership in China is far higher than that of most western countries, with a staggering 90% of households owning one or more homes. By comparison, homeownership rates stand at around 60% across the Western world; in the US, the rate of homeownership fell to the lowest point since 1967, at only 63% in 2017. This remarkable success can be attributed to an unfriendly rental sector, frugal fiscal habits alongside other cultural factors. With this said, many economists and financial experts predict a changing housing situation within coming years, largely due to excessive house prices forcing more individuals into the rental market; it remains uncertain as to whether China’s homeownership success will continue to last.
Between 1992 and 2016, the share of Chinese households owning a home increased drastically. In 1992, the percentage of the population that owned a home stood at just 15%, with just under 85% of the Chinese population renting in public housing. However, in 1997, the proportion of home owners and public renters was equal at 50%, representing a monumental growth in the number of private homeowners.
This growth continued into the 2000s, with homeownership reaching 90% in 2007. Homeownership in China has hovered between 85-90% over the past decade; in most Western nations, home ownership has declined in the aftermath of the Great Recession of 2008. In the UK, the homeownership rate has fallen from 73% in 2008 to 65% in 2017.
The terrible conditions of the Chinese rental sector have contributed to the staggeringly high levels of homeownership in China. This is due to the lack of regulation and protection for tenants, with the housing rules in China greatly favouring landlords. One such example would be evictions, with landlords able to evict tenants on short notice. At the same time, landlords who lease their homes for renting aren’t subjected to safety and quality controls. As a result, it is not uncommon for renters to be subjected to poor standard renting accommodation. The combination of poor quality housing and the housing uncertainty that renting brings, has incentivised civilians to purchase their own home, thereby contributing to the rise in homeownership witnessed in China.
Moreover, the fiscal responsibility of Chinese citizens has also contributed to high homeownership rates. The rate of savings in China is remarkably high, having remained above 40% of household income since 2003. This is much greater than their Western counterparts, with the savings rate having averaged 8% during past decades. Such high rates of saving have allowed Chinese civilians to have enough money to purchase their own homes, or at least are not forced to borrow large sums of money. In the West, the ability to buy a home is largely dependent on the availability of credit; thus, it is unsurprising as to how the rate of homeownership in China far exceeds that of Western nations.
Cultural factors have a large part to play in understanding the high rates of homeownership in China. Tradition in China has led to social expectations for males to purchase a home just prior to marriage. This pressure has led to more than 30% of home purchases being carried out just prior to marriage in 2017. As the average marriage age in China sits at around 26-29, it is unsurprising that Chinese civilians have their parents pay part of the bill as incomes at this age are hardly enough to afford to buy a home. According to research by a Shanghai-based group, over 90% of Chinese first-home buyers are supported by their families. Due to this expectation for Chinese civilians to own a home, it should be of no surprise that homeownership rates are so high.
A return to renting
Whilst homeownership has risen in China, so have the prices for homes. Since 2000, average property prices have more than quadrupled, making Chinese homes some of the most expensive on the planet. In 2018, the average price-to-income ratio reached 35, representing 35 years of work at an average salary to be able to afford a home. At the same time, the rising cost of housing is now double that of disposable income.
All of these factors have made it nearly impossible for certain segments of the population, particularly millennials without relatively wealthy parents, to purchase a home. This creates a situation in which homeownership rates look set to fall for the first time in over two decades. As renting remains a very cheap option, it is likely that the number of Chinese civilians renting a home will increase in the coming years; currently, over 200 million Chinese are renting their homes. The Chinese government have implemented economic incentives for firms to build and develop more rental properties, such as tax breaks. As a result, the value of the Chinese rental market looks set to quadruple in value over the next decade, as the country’s young population looks increasingly likely to rent their own homes.