Housing wealth appreciation and consumption: evidence from China




Changyan Peng, Weisong Qiu, Quanyun Song & Bihong Huang


This article examines the effect of housing wealth appreciation on household consumption by using two rounds of China Household Finance Survey data from 2013 and 2015. The empirical results show that housing wealth appreciation leads to an increase in household consumption, especially for consumption goods with higher expenditure elasticities, suggesting that increase in housing wealth not only promotes household consumption but also improves the composition of the consumption. Estimations on different subsamples suggest that precautionary saving acts as the primary mechanism through which housing wealth appreciation affects consumption in China. The analysis further reveals that household consumption lags behind housing wealth appreciation. We conclude that drastic changes in house prices are likely to exhibit augmented effects on the real economy via the consumption channel. Policymakers in China should prevent large swings in housing prices while taking regulatory steps to control the housing market.

Supported by the 111 Project B16040