Chen, Combes, Démurger & Liu, «Housing Costs and Real Income Differences across Chinese Cities», Department of Economics, Sciences Po, 2023

A discussion paper titled « Housing Costs and Real Income Differences across Chinese Cities » by Chen, Combes, Démurger & Liu, was published by the Department of Economics at Sciences Po, in December 2023.

Abstract

We document variations in real income for high-skilled and low-skilled households across Chinese cities. Using comprehensive data on land parcel transactions and survey data for land development and household expenditure, we compute a city-specific housing cost index and we assess how it varies across locations. All three components of housing costs –unit land prices, land share in construction, and housing share in expenditure– decrease from the city entre to the periphery, increase with city population, and decrease with city land area, as predicted by theory. Overall, housing costs in China are high and vary a lot across locations. Income gains outweigh housing costs when moving from small to larger cities. However, in the largest cities, housing costs start dominating, especially for low-skilled households, illustrating a bell-shaped curve relationship between real income and city population in China.