Housing affordability of university graduates in Guangzhou

Housing affordability is an important policy and academic research agenda in almost all societies. This paper attempts to focus on a specific group of the population, namely recent university graduates, in order to understand how the macro economy, especially the labour market may impact housing affordability. By applying Residual Income Affordability model (RIA) supplemented by Housing Affordability Time (HAT) analysis, we find that housing affordability among young university graduates in Guangzhou is largely dependent on salary growth in the labour market. Labour market structure, especially income adjustment propensity, largely determines housing affordability in a market with constantly high housing demand such as Guangzhou. We find that housing affordability among young university graduates improves with work experience longevity and the corresponding salary increase. Hence, for the younger generation with a good educational background, initial government support in the housing market is more important than long term permanent housing subsidy. In addition, we also examine how graduates from different tiers of universities may differ in their housing affordability at various stages of their life trajectory, ceteris paribus. We find that graduates from higher-ranked universities tend to have higher housing affordability in the long run. This echoes our major conclusion that encouraging the labour market to reward employees with better educational background and more extensive professional experience will help alleviate housing affordability problems in the city. To this end, we provide a number of policy recommendations in both the housing market and other sectors, such as mortgage loans and the labour market to address housing affordability for the younger generation.