Demand and Supply for Residential Housing in Urban China

This paper addresses the issue of demand and supply for residential housing in urban China since the late 1980s when the urban housing market became commercialized.We start with the basic premise that the standard theory of demand for and supply of consumer durable goods is applicable to urban housing in China after the market for housing was established.In a simultaneous equations framework we provide estimates of income and price elasticities of demand and price elasticity of supply.Analysis of aggregated annual data from 1987 to 2006 shows that the rapid increase of urban residential housing can be well explained by the forces of demand and supply,i.e.,growth in income and change in construction cost determines the aggregated movement in housing price to a large extent.We have found the(long-run)income elasticity of demand for urban housing to be about 1,and the price elasticity of demand to be between-0.5 and-0.6.The price elasticity of supply of the total stock of housing is about 0.83.