By Xu Wei & Lan Zongmin, Research Team on "Growth in Middle and Long Term” of DRC Research Report, No.69 2014 (Total 4568)

I. The Approaching of New Peak Demand for Urban Housing and New Housing Starts

Based on the Statistical Communiqué on Urban Housing 2005 and the 6th national population census in 2010, and in light of the new housing starts and depreciation of urban housing as well as city expansion in the past few years, the urban housing stock was about 20.6 billion square meters nationwide in 2013. As permanent urban residents totaled 730 million, representing 256 million families (which means 2.85 people per family on average, with no distinction made between collective households and family households currently recorded under the Chinese household registration system), the per capita housing area in cities would be 28.1 square meters. Besides, according to the per unit area of newly built commercial housing every year and that of housing stock obtained through a sample survey in 2005¹, the per unit area of housing stock was about 85 square meters in 2013, when the urban housing aggregate was estimated to be 242 million units, averaging one housing unit for every urban family. According to the 6th population census, there were 207 million urban family households in 2010, and residents recorded under family households amounted to 89.1% of the total resident urban population. If an estimate was made based on this ratio, there were 228 million urban family households across the country in 2013, which means more than 1.05 housing units for each of them.

Table1 Forecast of Urban Housing Stock and Housing Investment Growth Rate

Note: Actual growth rate of investment is calculated based on construction area.

Source: Authors' estimate.

The urban housing stock is expected to have a net increase of 10.8 billion square meters and the number of housing units a net increase of 100 million from 2014 to 2013. In view of housing depreciation and the increase resulting from city expansion , a total of 125 million housing units have to be built in the next decade. By then, housing conditions for urban residents will be considerably improved, urban housing stock will reach 31.3 billion square meters, and per capita housing floorage will exceed 34 square meters (corresponding to an urbanization rate of 64.5% and a resident urban population of 920 million). Meanwhile, there will be about 340 million housing units, nearly 1.05 per household, or more than 1.1 if the calculation includes only family households, a level close to that in developed economies.

In line with the periodicity of housing development and the changing number of working-age population in China, it's possible to calculate the distribution of housing demand along the time line in the next decade, and the annual peak demand is between 12 and 13 million housing units. Correspondingly, housing investment is also approaching a historic high. In 2013, urban housing construction area was around 4.8 billion square meters, equivalent to 46 million housing units. Given the ratios between areas of new housing starts and completions and areas under construction in the past years, annual new housing starts from 2014 to 2023 may not exceed 10 million units. At this pace, the peak of new housing starts is expected to arrive before 2015, whereas that for under-construction and completed housing will arrive a little later. During that period, overall growth rate of housing investment will be notably slower than before (Table 1). In the last two years of the 12th Five-Year Plan period, the actual growth rate of urban housing investment calculated based on construction area will likely fall below 10%, while during the 13th Five-Year Plan period and after 2020, the actual growth rate is very likely to be lower than 5%.

II. Real Estate Market Shows Obvious Division

First, the national supply of urban housing has maintained a rapid growth rate in general, and the floor space of commercial housing for sale has risen significantly, but there is still an obvious supply-demand tension in the real estate market of first-tier cities like Beijing. The nationwide sales growth made a major rebound in 2013 compared with 2012, but the floor space of commercial housing for sale still shot up 37.2% from a year earlier. A comparison of cities of different types shows that there is an obvious division in the housing market supply-demand pattern. In Beijing, for instance, after the sharp rebound of housing sales in 2012, the floor space of sold commercial housing grew at a relatively steady pace in 2013, while the floor space of commercial housing for sale barely showed any growth due to insufficient land supply for housing.

Second, the housing price curve in first-tier cities and in second and third-tier cities has obviously begun to go in different ways. According to the 100-city price index, housing price in large first-tier cities has maintained a high month-on-month growth rate ever since the fourth quarter of 2012. The average selling price of commercial housing in Beijing, Shanghai, Guangzhou and Shenzhen, for example, has increased 28.5%, 13.3%, 26.7% and 25.3% respectively (based on 100-city price index). On the other hand, month-on-month growth rate of housing price in second-tier cities has remained relatively stable, while that in third-tier cities began to fall notably from October. In contrast, the month-on-month curve of housing price in different types of cities was basically the same before the fourth quarter of 2012.

¹ Note: (1) per capita housing floorage in this paper is smaller than the number published by the National Bureau of Statistics (NBS) (for specific reason, please refer to the "Medium and Long-term Growth" research group of the Development Research Center of the State Council, 2013); (2) area of houses with limited property rights is not considered in this paper. If the per capita area of urban housing published by NBS is adopted and the area of houses with limited property rights is incorporated, the current urban housing area would be larger and the peak demand might arrive earlier.

² 1% National Population Sample Survey 2005, NBS.