House prices and market fundamentals in urban China

House prices in China increased at an average annual nominal rate of 11% in the two decades to 2009. This increase in prices occurred during a period of rapid transition in ideology (from the plan to the market), in income, urban population and policies. This paper uses annual data from 29 provinces from 1998 to 2009 to determine the contribution of market fundamentals to house prices in urban China. The findings show that important market fundamentals such as the levels of income, construction costs, impending marriages, user cost and land prices are the primary determinants of house prices. A second finding is that housing prices in more developed provinces are determined by supply factors including construction costs and land prices, while prices in other provinces are determined by both demand and supply factors.