Housing, Wealth, Income and Consumption: China and Homeownership Heterogeneity

Abstract

Impacts on consumer spending in urban China associated with housing value, housing equity, financial assets and household income are evaluated using longitudinal data from the China Family Panel Studies (CFPS) survey. Findings suggest that the housing wealth effect on household consumption in China is much larger than has been shown for developed economies. The larger impact is prospectively related to structural limits on investing which favor real estate ownership, along with the dominant position of housing in total household wealth. We also find that a household's consumption varies across housing tenure. Homeowners having joint ownership of property on average have the highest consumption propensity, while those having sole ownership of property consume the most in response to appreciation in housing wealth.

House price and household consumption in China: evidence from micro-level data

“…Modern consumption theories, such as the absolute/relative/permanent income theory of consumption and the life cycle theory of consumption, suggest that consumption is influenced by wealth transformed from income. This is also verified by recent studies (Barrell et al, 2015;Chen et al, 2018;Kichian and Mihic, 2018;Alp and Seven, 2019;Galli, 2019;Jung, 2019). As a major component of wealth, housing is not just a matter of consumption (Piazzesi et al, 2007).…”

Will the Housing Wealth Effect Compensate the Macro-Economy? Evidence From Taiwan’s Domestic Consumption

“…However, as for the housing wealth effect, this will only benefit homeowners, while those who rent housing or families hoping to improve their housing will suffer from the effect. In regions with a high homeownership rate, the housing wealth effect will be more significant (Aladangady, 2017;Attanasio et al, 2009;Campbell & Cocco, 2007;Carrol et al, 2011;Case et al, 2005;Chen et al, 2010Chen et al, , 2018Cooper & Dynan, 2016;Dvornak & Kohler, 2007;Elbourne, 2008;Fereidouni & Tajaddini, 2017;Gan, 2010;Iacoviello & Neri, 2010;Muellbauer & Murphy, 2008;Paiella & Pistaferri, 2017;Simo-Kengne et al, 2013).…”

“…Based on their own findings, Yang et al (2018) discovered that the sustained increase in household wealth and the housing-ownership rate in China were accompanied by a decrease in the consumption rate. Chen et al (2018) evaluated the longitudinal data from the China Family Panel Studies (CFPS) survey, and finds that the housing wealth effect on household consumption in China is much larger than has been shown for developed economies.…”

“…However, from previous studies, in a region with high rates of homeownership and low loan interest rates, under the hypothesis of a housing wealth effect 3 , changes in housing prices should exert an influence on consumption expenditure, which will then further influence the performance of the economy. The reason is that housing by its sheltering nature generates personal expenditure 4 that directly and indirectly contributes towards the categories of consumption (Aladangady, 2017;Angrisani et al, 2019;Attanasio et al, 2009;Campbell & Cocco, 2007;Carrol et al, 2011;Case et al, 2005;Chen et al, 2010Chen et al, , 2018Cooper & Dynan, 2016;Dvornak & Kohler, 2007;Elbourne, 2008;Fereidouni & Tajaddini, 2017;Gan, 2010;Iacoviello & Neri, 2010;Muellbauer & Murphy, 2008;Paiella & Pistaferri, 2017;Simo-Kengne et al, 2013). As consumption is one of the main components in the formula for gross domestic product (GDP) 5 , it is considered that the impact of a housing wealth effect on consumption suggests that there exists a strong positive link between the housing market and macroeconomic activity.…”

Conspicuous consumption and household indebtedness

“…Vinson (2018) reports that while the net housing wealth effect is positive but modest, the collateral effect is significant for households with the higher borrowing constraint in the United States. On the other hand, Chen, Hardin, and Hu (2018) find that an increase in housing wealth has a much greater positive impact on consumption in the Chinese context compared to other developed countries. Others investigate how housing‐related spending such as mortgage debts and mortgage payments influences nonhousing consumption and saving behaviors (Fan & Yavas, 2018; Güneş & Tunç, 2018; Tunc & Yavas, 2016, 2017).…”