House prices in China have been on a long upward march over the past decade prompting questions about what the future holds (see Chart 1). At a conference last month in Shenzhen leading analysts of China’s housing markets provided some answers.
Organized by the IMF in cooperation with the Chinese University of Hong Kong, Shenzhen and Princeton University, the conference—International Symposium on Housing and Financial Stability in China—spotlighted new data sets on China’s housing markets, which provide informed views of what might happen next.
The conference was part of a series of conferences organized as part of the Global Housing Watch initiative, which also provides a quarterly update on conditions in housing markets. The latest update, released today, shows how China’s house price changes compare with those around the globe.
Participants at the Shenzhen conference stressed that the steady increase in China’s house prices (see Chart 1) at the national level masks tremendous variation at the city level. Beijing has “experienced one of the greatest booms ever seen in housing markets,” according to real estate expert Joe Gyourko (University of Pennsylvania), but the situation is different elsewhere. With his co-authors, Gyourko has constructed a residential land price index for 35 large cities in China based on government sales of land to private developers. These data show that prices have increased in inflation-adjusted terms by about 80 percent a year in Beijing over the past decade but by only 10 percent a year in Xian (see Chart 2).
Whether this pattern of price increases will continue depends on the balance between supply and demand, which varies across cities as well. At the conference, Gyourko presented estimates of the balance between housing supply and demand in the 35 cities. He concluded that in 20 percent of the cities—among them major ones such as Beijing, Hangzhou, Shanghai and Shenzhen—supply remains “below our projected demand.” In Chart 2 such cities are shown in green. In contrast, in 40 percent of the cities, including Xian, supply is “at least 30 percent above projected demand” (shown in red in the chart). The remaining 40 percent of cities are “modestly over-supplied,” said...