Too Many Homes, Too Little Spending: Inside China’s Deepening Housing and Consumption Divide

China’s housing challenge is increasingly about access, quality and liquidity, as millions live in rental or legacy homes despite a roughly 90% homeownership rate. Reducing housing segmentation and improving existing homes could unlock household spending, strengthen mobility and support China’s shift toward consumption-led growth.

China's property slowdown is usually viewed through falling home sales, developer debt, unfinished projects and excess inventories. But an International Monetary Fund working paper by Estelle Xue Liu and Jibingxin Han suggests that the bigger structural problem lies inside household balance sheets. China may have abundant housing overall, yet millions of families live in homes that are difficult to sell, mortgage or upgrade. In contrast, others face high barriers to entering the commercial housing market.

Using China's 2000, 2010 and 2020 Population Censuses and the 2019 China Household Finance Survey, the researchers divide urban households into three groups: renters, legacy homeowners and market homeowners. Their findings suggest that housing policy could have consequences far beyond real estate, influencing household consumption, labour mobility and China's broader economic rebalancing.

A Housing Giant With Millions Outside the Market

China has a homeownership rate of around 90 percent, while average living space has reached approximately 40 square metres per person. Yet these impressive numbers hide a highly fragmented housing system.

Market homeowners increased from just 11.7 million households in 2000 to 122.9 million in 2020, accounting for about 42 percent of urban households. Renters rose from 27 million to 61.7 million, while another 107.3 million urban households still lived in legacy housing in 2020.

Legacy housing includes self-built homes, former public or work-unit housing, subsidised properties and homes acquired outside normal commercial transactions. Many owners therefore possess housing wealth but cannot easily convert it into cash or use it as collateral.

Quality is another concern. Around 31 percent of occupied urban dwellings were built before 2000, with older homes concentrated disproportionately in the legacy segment. Many older buildings lack elevators, while some properties also lack modern facilities such as hot water or flushable toilets.

For policymakers, this means headline indicators such as homeownership rates and housing inventories cannot provide a complete picture. Housing quality, location, affordability and tradability also matter.

When Property Wealth Fails to Support Spending

Housing represents roughly two-thirds of Chinese household wealth, making the sector closely connected with consumer behaviour. But owning property does not necessarily provide financial security if households cannot easily monetise that asset.

The research finds significant differences in discretionary spending across housing groups. A 10 percent decline in household income is associated with about a 3.7 percent reduction in discretionary consumption among renters, compared with roughly 4.5–4.7 percent among homeowners.

Legacy homeowners are particularly sensitive to income changes. They often have lower incomes while holding properties with limited tradability and collateral value. This makes it harder to use housing wealth to maintain consumption when income falls.

Market homeowners face another problem: mortgages and housing-related commitments reduce the money available for flexible spending. Renters, meanwhile, may direct additional income toward saving for large down payments rather than increasing current consumption.

For China's economic planners, the findings underline an important challenge. Stimulating household consumption may require addressing housing-related financial constraints alongside conventional measures designed to support incomes and property sales.

Policy Focus Could Shift From Construction to Better Housing

The study suggests that China's housing challenge cannot be understood simply as a shortage or surplus of apartments. Different groups face different problems.

For governments, greater attention to urban renewal, ageing housing, rental affordability, mobility and barriers affecting housing access could improve how existing housing serves households. Renovating older residential areas and improving facilities could also help close the quality gap between legacy and modern market housing.

However, the IMF paper does not evaluate individual policy interventions or estimate how much additional consumption particular reforms would generate. Its findings should therefore be treated as evidence about structural constraints rather than a ready-made policy prescription.

International development partners can draw lessons from the research for work on affordable housing, urban regeneration, ageing-friendly infrastructure, housing finance, social protection and household data systems. The central lesson is that housing programmes should distinguish between renters, market homeowners and households possessing illiquid legacy assets rather than treating homeowners as a single economic group.

A New Opportunity Map for Private Investment

The changing structure could also reshape opportunities for private companies. Instead of relying primarily on large-scale new construction, future demand could increasingly emerge in building renovation, property management, energy-efficiency improvements, elderly-accessibility upgrades, rental services and urban regeneration.

Financial institutions may also see opportunities to develop mechanisms that help households use housing wealth more effectively, although consumer protection and financial stability would remain important considerations.

The post-2021 property adjustment makes these issues more significant. Around 78 percent of market homeowners surveyed in 2021 had purchased their primary residence between 1998 and 2014, while only around 4 percent bought during 2020–2021. The researchers therefore suggest that the downturn's effect on consumption may operate less through widespread realised property losses and more through weaker expectations of future price gains, reduced financial flexibility and precautionary behaviour.

For policymakers, development partners and investors, the broader message is that China's housing challenge is increasingly about accessibility, quality and liquidity rather than simply quantity. Better use of existing housing, easier household mobility and reduced financial barriers could strengthen consumption and economic resilience. Failure to address segmentation, however, risks leaving substantial household wealth locked in property while domestic spending remains constrained.