Housing affordability: Beyond the income and price terms, using China as a case study
Introduction
Housing has long been an important target of public policies in many societies. This involvement stems from a public reaction to the problems of poor housing conditions in the late 19th century and early 20th century in European countries which were closely associated with serious public health problems arising from insanitary conditions and overcrowding (Smith, Whysall, & Beuvrin, 1986). This concern was expressed through the introduction of building codes and slum clearance programmes that dated from this time.
In addition to the issue of housing quality, there was a mounting need to increase housing supply to meet the twin impacts of war damage both during the First and Second World Wars as well as population growth (Wendt, 1962). A notable policy response to war time and post-war housing shortage was the imposition of housing price and rent ceilings in countries such as Britain, France and America (Jenkins, 2009), to ensure that housing remained affordable to lower income households.
In more recent years when the exchange value of housing has been stressed more than the use value, the focus of discussion has shifted more towards housing affordability problems. This has come to the fore in the last two decades which have seen housing prices and rents increasing at a greater pace than in previous years. Consumers, especially low-income consumers, find it harder to access appropriate and adequate housing at an affordable cost in countries including Australia, Canada and China (Beer et al., 2007, Chen et al., 2010, Purdy, 2003).
Governments have intervened to deal with the housing affordability problem through various policy strategies. However, the housing affordability problem seems to be embedded in the operation of a market driven housing system and has proved difficult to solve under prevailing policy settings. As a result, housing affordability continues to be one of the key themes of contemporary housing studies.
China, too, is now facing the problem of deteriorating housing affordability following the extensive housing reforms 35 years ago that transformed the housing system from an administrative allocation model to a model based on market mechanisms. Despite strong government commitment to deal with the housing affordability problem (Wang & Murie, 2011), this issue has produced major dilemmas for consumers and policy makers alike. Therefore, to inform further policy reforms in this area, this study explores the concept of housing affordability as it provides the basis for understanding and measuring housing affordability problems. Following a broad discussion on the housing affordability concept, this research uses a case study in Wuhan, China, to exemplify how consumers may respond to unaffordable housing costs and how housing policies may affect different dimensions of housing consumption.
Section snippets
The ‘ratio’ approach
The most common method to understand and evaluate housing affordability has been the ratio approach, which directly compares housing costs to household income. This approach originated from the 19th century's ‘rule of thumb’ principle (Thalmann, 1999), which denotes that a week's income should be sufficient to pay for a month's rent.
Different housing expenditure-to-income ratio criteria have been applied in different countries and studies to judge housing affordability problems. Much Australian
Dimensions of housing appropriateness
Failing to fulfil a household's housing needs at an affordable cost can have significant implications for consumers as they may have to adjust the way they consume housing and non-housing goods. Consumers may simply choose to spend a high proportion of their income on housing and compromise their aspirations on other non-housing needs. Or alternatively, they may adjust their housing choice to reduce their housing costs and achieve a balance between housing needs and non-housing needs. This
Research methodology and criteria to judge housing appropriateness dimensions
The case study approach has been applied to one large Chinese city – Wuhan, which is the biggest city in central China and capital of Hubei Province. The city has been chosen on the basis that it can be a good representative of China on housing affordability issues as its income and housing price levels, the two most important indicators of housing affordability, are very close to the respective national average levels in recent years (Cai, 2013).
Discussion in the case study is centred on a
Conclusions and implications
By applying a concept of housing appropriateness with four dimensions – affordability, accessibility, amenity and adequacy – it becomes evident from the case study that income-constrained consumers are making trade-offs between housing costs and the quantity of housing that they consume. Although housing has appeared to be increasingly unaffordable, income-constrained consumers do not spend excessively on housing costs. Thus it seems that rising housing costs are manifested in a different way,
Acknowledgements
This project was funded by the National 985 Project of Non-traditional Security at Huazhong University of Science and Technology, PR China; China Postdoctoral Science Foundation (Grant No.: 2014M562034). The authors would like to thank Professor Bill Randolph and Associate Professor Vivienne Milligan (the University of New South Wales, Sydney, Australia) for their comments on the designing of the case study and on arguments in this paper. The authors also express their appreciation to the
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