Intergenerational wealth transfer through housing – lessons from China’s housing reforms
A study of China’s housing reforms in the 1990s demonstrates the sustainability of property-backed welfare and redistribution, and at the same time reveals how intergenerational wealth can perpetuate price resilience.
29 June 2026
In Singapore’s housing landscape, residential property extends substantially beyond its fundamental utility of providing shelter. Homes have also been positioned as a robust store of wealth and a tradable asset that has historically appreciated well in our land-scarce environment.
Additionally, the availability of equity-release mechanisms – such as the Lease Buyback Scheme for HDB flats – creates a dynamic landscape for capital recycling through which households actively upgrade or right-size, and reallocate housing equity for savings, further investment or consumption. In this regard, housing effectively functions as an asset-driven engine in lieu of a traditional pension system, working alongside the Central Provident Fund (CPF) to support senior citizens’ post-retirement needs.
In their 2026 study “Housing Privatization as Intergenerational Redistribution”, Chen, Fang and Tang deep-dive into China’s housing reforms of the 1990s, investigating how the privatisation of what was previously state-owned rental housing enabled citizens to unlock and own home equity for the first time. This study provides a compelling framework for evaluating the long-term sustainability of real estate-driven welfare systems, and highlights potential learning points for policymakers here.
China’s housing reforms
Prior to the first systemic reform in 1994, urban housing in China operated under a planned-economy framework. Employees received relatively low wages, but were compensated "in-kind" with heavily subsidised, state-owned rental apartments.
The housing landscape in China reached a turning point in 1994 when employees were allowed to purchase government housing (or “reformed housing”) at steep discounts, with purchase prices averaging out at 38% of their actual market value. By handing underpriced physical assets to sitting tenants right before full commercialisation and residential mortgages were introduced in 1998, the state enabled older cohorts to unlock and own massive home equity for the first time, setting the stage for a unique generational wealth transfer.
Findings
The nationwide housing market privatisation initiated in 1994 fuelled a massive, decade-long housing boom that transformed the domestic housing market, resulting in China achieving one of the highest homeownership rates in the world. Urban homeownership surged from 42% in 1995 to 78% by 2002, and increased further to 88.7% by 2007. Since then, China’s homeownership rate has consistently remained above 85%.
Initially, the market’s supply comprised an overwhelming proportion of reformed housing as eligible employees took advantage of generous discounts and seized the opportunity to own a home. Over time, however, this structural composition shifted dramatically. The authors found that commercial housing started to occupy an increasingly dominant share of the market while the proportion of reformed property steadily diminished.
In 2000, following the full liberalisation of the housing market, “trade-up” activity – where owners of reformed housing sold their units to upgrade to commercial properties – contributed to about 60% of the demand for commercial houses, rising to 75% in 2005, before dipping to about 40% in 2010, and to less than 10% by 2015.
In tandem with rapid wage growth over the decades, younger first-time homebuyers progressively began to overtake older cohorts as the primary drivers of market demand. Backed by rising incomes, these younger buyers flooded the commercial sector and bid up property valuations, which effectively also allowed the older generation to liquidate or downsize their initial reformed housing assets at a massive premium.
Fiscal resilience of an asset-backed system
Beyond acting as a wealth transmission mechanism, the study reveals that this housing-led framework functions as a highly resilient fiscal buffer during economic slowdowns – a characteristic the authors define as its “automatic adjustment” property.
Traditional pension systems have to grapple with resistance towards benefit cuts when the economy is bad, leading the state to run a deficit. This ultimately imposes a higher income tax burden on younger generations as they contend with supporting an ageing population. In contrast, housing that is market-driven naturally softens in a bad economy, and because property values are intrinsically linked to wages, asset prices will adjust downward organically during a downturn. This self-correction automatically mitigates the financial burden on the state.
Under a simulated economic slowdown where wage growth declined from 8.1% to 5% in 2010, the authors found that under a traditional pension system, the state's social security deficit ballooned to 28.7% of tax revenues, severely penalising younger taxpayers. In contrast, under the housing privatisation model, the flexible nature of property pricing absorbed the shock, moderating the fiscal deficit to 24.8%.
Learning points for Singapore
The Chinese housing reforms share a fundamental DNA with Singapore’s public housing programme, furnishing a compelling demonstration of property-backed welfare systems as a sustainable means of wealth redistribution. Rather than relying on traditional, state-funded pensions, both nations strategically leveraged housing privatisation and homeownership as the primary vehicles for domestic wealth accumulation and retirement adequacy.
The key advantage of this framework lies in its inherent sensitivity to market fluctuations. Since property values organically adapt to changing economic environments, the system avoids disproportionately shifting the financial burden to younger working generations or straining the state through taxpayer-funded deficits over time.
In Singapore, the early integration of the Central Provident Fund (CPF) with public housing (HDB) schemes turned a physical asset into a cornerstone of social security. This directly mirrors the study’s findings on China’s 1994 reforms, where eligible employees were given the opportunity to acquire home equity at heavily discounted prices and subsequently grew their wealth as the market commercialised.
However, whereas property prices today are softening in the Chinese market, Singapore faces the opposite challenge. Residential property prices here have continually faced upward pressure amid land scarcity and value appreciation driven by intense urbanisation.
To maintain market stability and prevent prices from running away from economic fundamentals, the Singapore government has continually deployed property cooling measures since 1996. These interventions have taken various forms, combining fiscal measures (such as the Additional Buyer’s Stamp Duty and Seller’s Stamp Duty) with macroprudential measures, including strict Loan-to-Value (LTV) limits and the Total Debt Servicing Ratio (TDSR) to enforce structural borrowing discipline.
The "Bank of Mum and Dad"
While property curbs attempt to keep prices in check, Chen et al.’s study sheds light on an intergenerational demand driver that helps young homebuyers enter an otherwise prohibitive private housing market. The study highlights that in a mature asset-backed system, skyrocketing property prices naturally create a steep affordability gap for younger cohorts relying solely on entry-level wages. To resolve this structural squeeze, the authors’ modelling demonstrates that the system relies significantly on inter vivos transfers i.e. financial gifts from parents.
The older generation, having accumulated substantial housing equity from early market reforms, recycles this capital downward to fund the down payments for their children, effectively acting as an essential liquidity provider for the next generation of buyers. Quantifying this dependency, the study demonstrates that housing privatisation fundamentally enhanced this generational safety net. Between 2000 and 2025, aggregate parental bequests in the Chinese housing market were 1.43 times higher than they would have been in counterfactual economies without the housing reforms.
In other words, parents were actively leveraging their own asset wealth to help their children secure pricey home purchases that they would otherwise be entirely unable to afford.
This finding closely mirrors Singapore's private and resale markets, where first-time buyers increasingly rely on the "Bank of Mum and Dad" to bridge upfront capital outlays. To the extent that market valuations factor in accumulated multi-generational wealth rather than just individual entry-level wages, residential property prices can remain remarkably resilient, notwithstanding stringent property cooling measures.
Chen, Kaiji is a professor of economics at Emory University, a fellow of the Asian Bureau of Financial and Economic Research (ABFER) and an associate editor of the International Economic Review and China Economic Review.
Hanming Fang is Norman C. Grosman Professor of Economics at the University of Pennsylvania. He also holds a secondary appointment at the Department of Health Care Management (HCM) and the Department of Business Economics and Public Policy (BEPP) at the Wharton School.
Tang, Yang is an associate professor at Division of Economics, Nanyang Technological University.