Study On Housing Affordability

Housing affordability is a critical signal of housing market, by which housing consumers decide their own levels of housing expenditure, housing producers make their product strategies for different income level household, governments set up the eligibility rules and scope for housing assistance, financial institutions evaluate the mortgage risk, and hence a key to research housing market and policy.From this perspective, this paper aim to develop a clear-cut argument about how the housing affordability to be measured, effected, used, and improved. In the development of argument, this paper pursues two objectives, firstly, to construct a general analysis framework of housing affordability, secondly, to make empirical analyses and present the policy implication within China context. The main conclusions are as following:1. The factors effected housing affordability are housing costs, incomes and the costs of nonhousing necessities. Residual income approach is a sound and robust way to measure the housing affordability, whereas both the ratio approach and house price-income ratio are logically unsound and give a misleading picture of the way households experience the squeeze between housing costs and incomes.2. Both cash costs and user costs are expression of housing costs, of which cash costs are better guide to housing affordability. Cash costs consist of two components: housing expense comprised of monthly mortgage payments, and shelter expenditure including hazard insurance, property taxes, maintenance and repairs, and fuel and utilities. Spatial heterogeneity, as well as temporal heterogeneity, is the characteristic of cash costs. Compared with house prices, housing expense more soundly explain the interaction between supply and demand in housing market.3. Fixed effect model estimated from empirical test on panel date for 35 cities in China from 2001 to 2006, is robust for explaining the statistical relationship between house prices and income, which suggests that, other things being equal, a 10000 Yuan increase in per capita wage forecasts 880 Yuan rise in urban house price. From 1997 to 2006, in China, lowest income households and lower end of low income households suffer from worsening housing affordability, because of increase in wage failing to offset the rise in housing costs.4. The house price that simultaneous meet the down payment constraints, income constraints, housing affordability constraints, is referred to as a reasonable house price. Analysis based on date of Chongqing housing market in 2005 indicates that housing affordability constraints are responsible for the reasonable house price, while, in particular, either down payment or income is no-binding constraints to reasonable house price.5. Proposals improving housing affordability for shelter poverty households in China are put forward as following: firstly, to found the housing security fund and housing mortgage collateral institution sponsored by government; secondly, to enforce the taxation and financial system to support low income housing development; thirdly, to further improving the information disclosing system in housing market; fourthly, to develop mixed-income housing program;This paper makes three contributions:1. To construct an analysis framework of housing affordability which consists of four component: measure of housing affordability, affecting factors of housing affordability, use of housing affordability, improvement of housing affordability, and among the four component, the measure of housing affordability is central. It is a general framework, by which financial institutions make their viable underwriting standards, governments make efficient and equitable housing policies, housing producers make their rational product strategies.2. To distinguish the identifying housing affordability from the aggregating one, residual income approach is useful to identify the housing affordability problems, and a set of methods aggregating housing affordability problem are put forward.3. To find the fact that nonhousing expenditures are partly responsible for disparity in house price across different cities or different location in a given city, and also for income-mixed housing development, however, it is omitted by the current researches on housing affordability. Housing services are not only delivered by home in itself, which costs impute to housing costs, but also by neighborhoods, communities, and local municipal government, which costs to nonhousing expenditure.