In this article, Professor Zhang Qinghua, along with other researchers, investigated the impact of a surging housing market on marital sorting. Their findings suggest that joint investment in housing likely plays a significant role in marital sorting. This article was published on the Journal of Development Economics in 2020.

1. Background: the surge in personal home mortgages over the years

The 1998 reform that privatised the housing sector triggered a period of rapid development of the real estate markets in urban China. In 2002, the central government announced the reform of land usage rights, which mandated that all urban land must be transacted through public auctions by law. Enforcement of this law was tightened in August 2004 which triggered a hike in land and housing prices afterwards. Over 2002 to 2008, the annualised rate of growth of housing prices reached 9.0 percent, and after 2008 the growth in housing prices accelerated at an annual rate of 12.3 percent. This further acceleration could be attributed to a $580 billion stimulus package from the central government, which feared a slowdown in economic growth following the 2008 global financial crisis.

As a result of this huge stimulus, commercial banks started offering mortgage loans, banks loosened their lending standards for individual home purchasers, and rents were allowed to increase steadily, to encourage people to purchase and own houses. The size of the average mortgage has been increasing ever since. As reported by Caixin, one of the largest Chinese journals on finance and economics, using data from the People’s Bank of China, the central bank, outstanding personal home mortgages in China have expanded sevenfold, from 3 trillion RMB (US$430 billion) in 2008 to 21.9 trillion RMB in 2017.

2. Homebuyers and their families

Unlike their parents, the younger generations today face extremely high costs of housing. As reported by Forbes in 2016, the average cost of an 80-square-meter apartment in a city suburb was about $200,000. By contrast, an apartment of a similar size sold for $310,000 in Beijing’s suburbs and $886,000 within Shanghai’s Inner Ring Road. As reported in the same article, “This is all in a country where $5 can get you a bulging armful of food from the local market and $70 gets you a bunk on a train that’s going all the way across the country.”

Thus, a young couple must rely on the financial assistance of their familial and friend networks to purchase a house. Among these networks, the homebuyers’ parents and in-laws typically form the inner circle. It has become a new trend in urban China that the parents of both spouses contribute a large portion of their savings to provide their children with an adequate house, help with the down payment, or at the very least provide access to their social network to borrow the required funds.

According to China’s 2005 Population Census, the mean ages at first marriage for urban men and women are 26.2 and 24.1 years, respectively. At this age, saving from their own income is generally insufficient to make a down payment on a dwelling in one of China’s major cities, and any purchase is likely due to the heavy involvement of the couple’s parents. Findings from this research also shows that couples with both parties having an educated father owned 0.163 more dwellings, and resided in housing with 1290 RMB higher unit price and 117,540 RMB higher market value, respectively, during a time when the average yearly wage of urban residents was only 13,700 RMB in 2010. These statistics show severe inequality on housing assets across couples with different family backgrounds.

3. The relationship between housing price appreciation and marriage sorting

In this study, the team investigated the correlation of spouses’ parental education in response to housing market features, by using data from the Chinese Household Income Project (CHIP). They also found that housing price appreciation significantly enhances marriage sorting.

For husbands, when the down payment doubles, one more year of paternal schooling predicts a marriage in which the father-in-law’s schooling is at least 0.17 year greater than in a scenario in which the down payment does not increase. In addition, if the housing price appreciation rate increases by 1 percentage point, then one more year of paternal schooling predicts that the husband will enter a marriage in which the father-in-law’s schooling is 0.11 year greater than in a scenario in which the housing appreciation rate does not increase. This increasing assortativeness in parental education could at the same time suggest stronger sorting by the wealth of original families because of the close correlation between education and income, along with accumulated wealth.  

4. The incentive of joint investment

Past research has emphasised heavily on the wealth signal of housing purchases before marriage. As housing is a very visible symbol of wealth and can be observed with more precision than a bank deposit, stock trading account and many other forms of wealth, this status-good feature of housing is especially important in the marriage market.

In addition to the above, one innovation of this research is that it emphasises the investment aspect of housing purchases after marriage. This study suggests that the impact of booming housing market on greater assortativeness could also be driven by the incentive of joint investment in housing through marriage. This is due to two reasons. First, housing is indivisible, and the requirement of a down payment deters individuals from purchasing houses. A higher level of housing prices tightens this constraint, and the potential for coordinating the purchase of a house through family resources predicts positive assortativeness. Also, given the tightness of the credit constraint, a higher rate of price increase boosts the expected return on the housing asset, which stimulates the incentive to marry up to borrow from a spouse’s wealthy parents, leap the down payment hurdle, and invest more in the housing market.

Furthermore, evidence can be drawn from the reduction in assortativeness after the announcement of the Third Judicial Interpretation of the divorce law. In 2011, the above law changed the rule of equal division of housing property acquired within marriage and stipulated that each spouse’s awarded share will be according to his or her contribution toward the down payment for housing. This effectively imposes a prenuptial agreement on the housing assets of each marriage, securing the welfare of the party who contributed a greater share of the housing investment. Through comparing the responses of matching pattern to housing market before and after the reform, this study found out that although the matching effect is still present after the reform, there was in fact a 48.4% reduction in assortativeness. These results thus provide suggestive evidence on the channel of joint investment in housing.

5. Conclusion

At present, most studies on the impact of housing market on marriage focus on outcomes such as intra-household bargaining and fertility, as well as the timing of moving out of parents’ homes and divorce. This paper has brought new light on this subject by defining the housing market as an invisible driving force for marriage matching.  

In addition, the team also suggests that increasing assortativeness should raise serious concerns among economists and policy makers, considering that the average real housing price in 35 major Chinese cities has grown at an annual rate higher than 11.4 percent over the past decade. This research finds that this expanding inequality in housing assets could be exacerbated and transmitted to the next generation through the marriage market. That is, through marriage sorting, children born into rich families can extend their credit to make greater investments in housing and, thus, accumulate even greater wealth in a booming real estate market.