House prices in China have skyrocketed in the last decade, making the country one of the least affordable places in the world to buy property, relative to income. One of the most popular jokes among Chinese bachelors is that the country’s demanding mothers-in-law are behind the soaring house prices.
This apparently innocuous joke is grounded in the reality of a recently developed social norm in China: the groom’s family buys an apartment for him and his young wife. According to a survey conducted by China Economic Daily in March 2010, 80 per cent of mothers with a daughter in eight major cities said they would object to their daughter marrying a young man who could only rent rather than own a home.
The 2010 Marriage Market Survey also indicates that 71 per cent of unmarried women prefer that their future partners own a home. These survey results have prompted sensationalist headlines like “It is fundamentally true that mothers-in-law are pushing up the housing prices!”
So how true is the claim that nagging in-laws are behind the housing price increase? This has been tested by three of China’s most eminent economists, Shang-Jin Wei of Columbia University, Xiaobo Zhang of Peking University and Yin Liu of Tsinghua University.
Let’s start with a bit of housing economics 101. Housing is regarded as a consumption good as well as a status good, which means that you can use it as an asset as well as something you can show off to others. The status good feature of housing can be especially important in the marriage market, according to a paper by three professors at the US National Bureau of Economic Research, Status competition and housing prices.
In essence, it means that a young man’s prospects in the marriage market are to a large degree determined by the value of his, or his family’s, home. The ownership of a house is one of the most visible forms of wealth and an important status good in the marriage market. This implies that the intensity of competition in the marriage market can have consequences for housing value and housing size.
One of the paper’s authors, Professor Xiaobo Zhang, told Business Spectator that 30 million men in China would not be able to find a wife in the future due to the country’s highly-skewed sex ratio, which is one of the most inflated in the world. The national average sex ratio at birth surged from about 115 boys for each 100 girls in 2000, to 120 boys in 2005. This means that for boys born in 2005, one in six men won’t be able to find a wife. If left to nature, the sex ratio at birth should be about 106 boys to 100 girls.
“China’s has one of the highest percentages of home ownership in the world and one of the least affordable housing markets,” Professor Zhang said. “We cannot explain these phenomena using conventional economic theories.”
So the research team has proposed an alternative model to explain China’s soaring housing prices which assumes the intense pressure of mating competition in the marriage market is a key determinant for prices. The hypothesis goes something like this: as the sex ratio rises, house prices will increase.
Thanks to China’s varied sex ratios across many different provinces, researchers have been able to test this claim in observing the relationship between sex ratios and house prices across various locations.
What they have found is interesting. They have observed a strong positive association between the local sex ratio and the ratio of home value to household income across both rural prefectures and cities.
A rise in the sex ratio from 1.05 to 1.12 from 2000 to 2005 contributes to 36 per cent of the observed rise in the average home value in Chinese cities. And a higher sex ratio imbalance accounts for between 30 to 48 per cent of the increase in real house prices in 35 major cities between 2003-2009, according to their regression model.
Their study clearly shows that China’s highly skewed sex ratio is a key determinant of house prices in the country. The intense competition in the marriage market is modifying people’s behaviour from saving to housing consumption.
To put it simply, unmarried Chinese men are working harder and longer in order to buy a bigger home to improve their chances in the country’s highly competitive marriage market. So, it is not wrong for headline writers to proclaim that demanding future mothers-in-law are the driving forces behind China’s soaring housing prices.