Assessment of the Impact of Household Registration System Reform on Investment in Real Estate and Urbanization Industries in Second- and Third-Tier Cities

Based on the latest policy trends and market data, I systematically evaluate the impact of household registration system reform on investment in real estate markets and urbanization-related industries in second- and third-tier cities, and provide specific analysis of beneficiary sectors.

Current policies clearly propose “gradually relaxing household registration restrictions”, “eliminating ‘hidden household registration barriers’”, and “promoting relevant public services to follow people”, with a focus on solving issues such as education for children of rural migrant workers, housing security, and social insurance [1]. This will significantly reduce the institutional costs for rural residents and some residents of fourth- and fifth-tier cities to migrate to second- and third-tier cities, leading to a new round of population redistribution. Policies also emphasize “promoting relevant public services to follow people”, meaning education, healthcare, and social security will be linked to place of residence rather than household registration [1].

In 2024, China’s permanent population urbanization rate was about 67%, while the household registration population urbanization rate was less than 50%, a gap of approximately 17 percentage points [1]. This corresponds to over 200 million rural migrant workers who have not yet registered as urban residents. The policy goal is to raise the permanent population urbanization rate to over 70% during the 15th Five-Year Plan period [1], meaning the net increase in urban population will still be in the tens of millions, mainly flowing to regional central cities and second- and third-tier cities.

Policies propose “establishing a coordination mechanism for the allocation of new urban construction land indicators with the increase in permanent population” and “promoting the tilt of central fiscal construction funds to cities that have absorbed a large number of rural migrant workers for household registration” [1]. This “people-land-money linkage” mechanism will encourage cities to actively absorb population and form a virtuous cycle.

Current housing demand characteristics have shifted from “rigid demand”-driven to “improvement”-driven [2]. The rigid housing demand of “new citizens” such as newly registered migrant workers and new graduates continues to be released, while the improvement demand for existing housing such as “replacing old with new” and “replacing small with large” is gradually rising [3]. In 2024, the proportion of second-hand housing transactions increased from 28% in 2021 to 45%, indicating that improvement demand has become the main force in the market [3].

• Core Advantageous Cities
  : In 2023, Hangzhou’s population increased by over 550,000, Hefei, Changsha, Suzhou and other cities added more than 100,000 people annually, and Chengdu’s permanent population reached 21.403 million, narrowing the gap with Beijing to 455,000 [4]. These cities continue to attract population inflow with their industrial advantages and relatively low living costs.

• Population Inflow Cities
  : In 2025, Shenzhen’s net population inflow will be close to 500,000, Hangzhou and Chengdu will both exceed 200,000, and due to relatively balanced supply and demand in core sectors, housing prices may see a reasonable recovery of 3%-5% [5].

• Population Outflow Cities
  : In 2025, the net population outflow of fourth- and fifth-tier cities will reach 3.12 million, the广义 inventory digestion cycle is generally over 30 months, and UBS predicts that housing prices in such cities may fall by another 10% in 2026 [5]. This differentiation is essentially the result of “voting with feet”, as industrial hollowing leads to continuous shrinkage of housing demand.

In 2025, the scale of new housing sales has dropped to the central level, and the 100-city new residential price index shows [2] that after several years of concentrated development, some second-tier cities and most fourth- and fifth-tier cities have seen over-supply pressure, and inventory problems have gradually emerged [2]. In 2024, the average price of new residential buildings in 100 cities was under pressure, the digestion cycle was extended, and the market entered a stock competition stage.

: The rigid and improvement demand in population inflow cities will gradually repair the market, and urban renewal projects such as affordable housing, old community renovation, and urban village transformation are expected to accelerate. The Central Financial and Economic Affairs Office clearly stated that “encouraging the acquisition of existing commercial housing for reasonable purposes such as affordable housing to speed up inventory digestion” [3].

:

• Commercial Residential Development
  (housing demand for new citizens)
• Affordable Housing Construction
  (fiscal fund tilt)
• Urban Renewal and Stock Activation
  (dilapidated housing renovation)
• Property Services
  (existing housing operation)

: Local developers in population inflow regions such as the Yangtze River Delta, Pearl River Delta, and Chengdu-Chongqing, as well as enterprises participating in urban renewal projects.

: The increase in urban population brings demand for infrastructure (roads, water supply, power supply, sewage discharge, greening, etc.) to make up for shortcomings, as well as investment opportunities in “new infrastructure”. The central government proposed “adapting to changes in population structure and mobility trends, and high-quality planning and implementation of a number of major projects in the people’s livelihood field to make up for shortcomings, strengthen functions, and improve services” [6].

:

• Municipal Engineering
  (water supply and drainage, roads and bridges)
• Urban Rail Transit
  (second- and third-tier subway and urban railway)
• Public Utilities
  (gas, heating, water services)
• Environmental Protection Facilities
  (waste treatment, sewage treatment)

: Strong second-tier cities (Hangzhou, Nanjing, Suzhou, Wuhan, Chengdu, etc.) and some provincial capitals, which have strong fiscal strength and continuous population inflow.

: The growth of urban fixed asset investment drives demand for cement and building materials, and the advancement of infrastructure projects drives construction machinery orders. Urban renewal and infrastructure shortcomings will form stable demand for building materials.

:

• Cement and Products
  (benefiting regional leaders)
• Steel Structure and Prefabricated Buildings
  (policy support)
• Decorative Building Materials
  (consumption upgrade)
• Construction Machinery
  (excavators, cranes, etc.)

: Synchronized with the approval and implementation cycle of infrastructure projects, with cyclical elasticity.

: Population inflow drives “new citizens” to upgrade consumption in service areas such as housing, home appliances, education, healthcare, cultural entertainment, and tourism [7]. Since 2024, China’s urbanization process has continued, and the improvement of income levels and infrastructure will release new consumption demand [7].

:

• Home Appliances and Home Furnishings
  (driven by new housing and existing housing decoration)
• Education and Training
  (education demand for migrant children)
• Medical Services and Preventive Health Care
  (physical examination, chronic disease management)
• Cultural Tourism, Sports Fitness, Catering and Accommodation
• Digital Consumption, Green Consumption, Health Consumption
  [6]

: According to analysis, China’s consumption is large in total in terms of goods and basic services, but there is still great room for improvement in non-essential goods and high-quality services [7]. Urbanization will promote the development of consumption towards high-endization.

: Public services that follow people promote the expansion and quality improvement of education, healthcare, elderly care and childcare, and digital governance and smart city projects are accelerating [6]. Policies require “reasonably increasing the proportion of public service expenditures in fiscal expenditures” [6].

:

• Education Informatization and School Construction
• Medical Informatization and Hospital Upgrade
• Community Elderly Care and Childcare Services
• Smart Transportation, Smart Security, Smart Community

: Enterprises participating in public service PPP projects, as well as technology companies providing smart city solutions.

:

• Strong second-tier cities and some third-tier cities with population inflow (Hangzhou, Chengdu, Wuhan, Changsha, Suzhou, Nanjing, Hefei, etc.)
• Solid industrial foundation and clear policy support
• Strong fiscal strength and high public service supporting capacity

:

• Weak third-tier cities and some fourth-tier cities with population outflow, industrial hollowing, and high inventory
• Cities with a generalized inventory digestion cycle of more than 30 months [5]
• Regions with high fiscal pressure and insufficient public service supply

• Details of public service supporting fund sources and land supply policies are not yet fully clear
• Local fiscal pressure may affect policy implementation intensity
• Household registration restrictions in megacities and super-large cities are still strict, and the threshold for population agglomeration to first-tier cities still exists

Evaluation Dimension	Focus Areas
Regional Selection	Population inflow, industrial support, fiscal capacity, land supply rhythm
Industry Allocation	Real estate development, urban renewal, infrastructure and building materials, consumption upgrade, public services
Individual Stock Screening	Regional leaders, land reserve quality, financial stability, depth of government cooperation

:

1. Core Position
   (50%-60%): Local developers in strong second-tier cities + infrastructure and building materials leaders
2. Satellite Position
   (20%-30%): Enterprises related to urban renewal, public services, and smart cities
3. Theme Position
   (10%-20%): Service enterprises such as consumption upgrade, education, and healthcare

Household registration system reform and new urbanization process bring structural opportunities to the real estate market and related industries in second- and third-tier cities, but

will determine significant differences in market performance. Strong second-tier cities and some third-tier cities have relative advantages in population inflow, industrial agglomeration, and infrastructure upgrading, making them key areas for the layout of urbanization beneficiary sectors.

: Taking “population flow + industrial support + policy supporting” as the evaluation dimension, priority is given to real estate development, infrastructure and building materials, and urban service enterprises in population inflow regions, while vigilance is paid to regional risks with population outflow and high inventory pressure. It is expected that in the mid-to-late period of the 15th Five-Year Plan, with policy implementation and market expectation repair, urbanization-related sectors are expected to usher in systematic revaluation opportunities.

[1] Xinhuanet - Shen Xiaoming: Deeply Promote People-Centered New Urbanization
http://www.news.cn/politics/20251211/1ab0b089aaca4e18a181d876d473d072/c.html

[2] China Real Estate Index System 30th Anniversary - Industry News - CIH Index Cloud
https://m.cih-index.com/news/2023-03-28/53936565.html

[3] People’s Daily - Detailed Explanation of the Spirit of the 2025 Central Economic Work Conference
http://paper.people.com.cn/rmrb/pc/content/202512/17/content_30125073.html