Small property rights housing in major Chinese cities: Its role and the uniqueness of dwellers

As China has rapidly urbanized, housing prices in many cities have skyrocketed, reducing housing affordability and leading to the rise of an informal housing sector. This paper provides the first comprehensive demand-side analysis of the small property rights housing (SPRH) sector, using data from the 2015 China Household Finance Survey (CHFS) across twenty-seven major cities. This study shows that SPRH, despite its ambiguous legal status, has an average unit size larger than those in the formal sector. People who buy SPRH for basic needs (consumption demand) are more likely to be the locals with a middle range (“sandwiched”) financial and social status. They often have a large family size and thus have a strong demand for living space, and at the same time, they are willing (and able) to compromise on the benefits associated with legal property rights for a lower price. In this sense, the existence of SPRH supplements the short supply of affordable housing provided by local governments. Wealthy locals with high-risk preference are more likely to buy SPRH for investment. Such investment threatens social justice, and those people's strong influence on public policies is a potential reason for the continuing prevalence of SPRH. Findings in this paper contribute to a more solid understanding of the mechanisms and social structures behind this informal housing sector in Chinese cities.