Housing affordability distinguishes ‘need’ and ‘access’ as the key criteria to examine the ability of the households to enter the housing market or transit into homeownership. Housing affordability was broadly considered as the relationship between housing and non-housing expenditures, which examines the ability of households paying for a house without breaking current living standards or falling into poverty. In the context of economic transition and housing reform in China a fully market-oriented housing market has developed. The expansion of the residential housing market has been accompanied with house price appreciation and inflation, accelerating urbanization, and a rising demand for housing. These changes have led to affordability problems, particularly for low and middle-income groups. Recent research on housing affordability has shifted from estimating affordability indices to policy debates of granting housing and social welfare subsidies.

This paper examines the magnitude of Chinese households’ housing affordability issues since the early 1990s, on the basis of the most common measures of housing affordability. It combines ratio approach with demographic factors, household formation and financial constraints in estimation. Tenure choice refers to households' housing decision under the constraints of financial ability to choose owner-occupied or live in renting houses. The paper then employs affordability estimation results and analyses how these impact tenure choice decisions. The model not only employs aggregate level data from Statistical Yearbook, but also uses Household Survey data to reflect households’ affordability situations in China. With respect to the results, this paper tries to propose further policy measures regarding housing affordability and insufficient housing subsidies. _