Family Planning Policy and Housing Price in China

Shichang MA and Ting Yu
School of Economics and Management Engineering, Beijing University of Civil Engineering and Architecture

Abstract

Different intergenerational fertility levels affected by the family planning policy under such altruistic behavior will inevitably affect real estate prices. This paper studies the effect of different intergenerational fertility levels on real estate prices under the parental altruistic behavior model with Chinese characteristics by constructing an Overlapping Generation Model (OLG) with intergenerational wealth transfer. The empirical results show that the lower the intergenerational fertility level of the middle-aged generation, the higher the average wealth level transferred to the youth generation, and the higher the real estate price. This result shows that, unlike the high fertility rate of popular cognition, the low fertility rate of the middle-aged generation under the influence of the family planning policy and the altruistic behavior of the Chinese parents are the important reasons for the current high housing prices. After the implementation of the 1998 market-oriented reform of housing in China, the sales price and volume of real estate has both rose sharply. At the same time, China has entered the release period of the demographic dividend and large number of laborers flow into cities. The generation born in the 1980s has also gradually entered the marriage and childbearing period, bringing numerous inelastic demanded housing consumption. All these demographic factors have great impact on real estate prices from the perspective of demand and supply. However, it seems that it is not fully explained the continuous rise in housing prices for that supply is also increased with the demand all these years in China. The research on whether the higher birth rate will surely bring real estate demand and higher house prices requires further investigation. From the time that family planning policy was designated as a basic national policy in 1982 and written into the Constitution to the time that the implementation of the second-child policy in 2015, China's family planning policy has been adjusted according to national conditions. Then very different intergenerational fertility levels were formed. Under the traditional culture of China, people attach great importance to the concept of ‘home’. Home always means having own house in China. Many Chinese youths purchase houses early with the support of their parents. Parents' funding or even grandparents' sponsorship of young generation’s housing purchases has caused large amounts of wealth from different generations flowing into the real estate market.


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