The Changing Nature of Household Demand and Housing Market Trends in China

Abstract

China is one of the cities with the strongest growth in economy and housing price after the Financial Crisis 2008. Housing demand in China is generally perceived to be driven by fundamental demographical reasons, such as a substantial increase in the disposable income in recent decades, growing-up of the baby-boomer since the 1960s, etc. However, this paper puts forward evidence to refute these demographic conjectures, but contends a Fisherian’s monetary cause of housing demand. The imbalance of the economic situations of different provinces, but subject to the same centralized monetary policies on interest rate and money/credit supply, as well as the non-market driven currency exchange rate, very different inflation rates are envisaged at different territories of the continent. The recent upsurge of housing price is clearly a consequence of the supply of RMB4,000 billion new credit into the market and the currency peg to US$ after the 2008 crisis. In view of the very limited investment vehicles in China, housing market has become almost a pure investment or even a speculative commodity market for inflation hedging.