Housing Wealth Effect In China:From Household Heteroneity And Market Environment Perspective

As a major component of household wealth,housing assets exert a significant impact on households' investment and consumption behavior.Among the numerous studies,literature based developed countries' data usually identifies that housing assets have positive wealth effects.However,the results are quite mixed in China.Studies which suggest housing price suppresses or has no effect consumption are far from scarce.Why do those studies about China and developed countries show different results?Apart from various traditions and consumption ideas,another important factor ignored by scholars is the market conditions and institutional background in China is quite different.Against this background,this paper incorporates the micro households'characteristics and the market environment into an integrated analyzing framework and attempts to explore the following questions:1)What is the effect of housing price on non-housing consumption?Does this effect rely on the financial market and housing market?2)How do households' characteristics affect housing wealth effect?3)Will financial market and the fluatUation of housing market sentiment affect housing wealth effect?In order to answer these questions,this paper first uses threshold regression to test wether housing wealth effect can be influenced by market conditions based of the 35 major cities data.Then,this paper attempts to explore how households' charateristics alter housing wealthing effect by using the panel data from China Family Panel Survey.Lastly,this paper incorporates the macro environment and micro household heterogeneity into an integrated ananlyzing framework to investigate how different households' consumption reacts to the variation of housing price under different market condition.The results show:1)Overall,housing has a positive wealth effect.That is,increasing housing price will stimulate consumption.Meanwhile,the strength of housing wealth effect depends on households' characterisitcs.For home owners,an increase in housing price has a positive effect on their consumption;For renters,an increase in housing price exerts a negative impact on their expenditure,especially tor young renters.What is more,the effect housing assets is stronger among households who are credit constrained.2)Both city-level and household-level analysis document that financial market development strengthens the positive wealth effect and weaken the negative wealth effect,and such a moderating effect is stronger on credit-constrained households.However,this positive moderating effect is not significant among young households.3)Housing market also matters.The reasonable housing price-to-income ratio(lower than 7.9850)is helpful in the dominance of positive wealth effect.However,if housing price-to-income ratio is too high and unaffordable(higher than 7.9850),this positive effect becomes insignificant.For different housholds,a bullish housing market sentiment will increase the probability of owning a house,which in turn weakens the positive effect of housing price on constrained onwners' consumption.However,positive sentiment will strengthen the positive effect of housing price on unconstrained owners and all renters.The contributions of this study have three folds.First,this paper incorporates the macro environment and micro household heterogeneity into an integrated ananlyzing framework,considering the effect of market condition and household characteristic on the mechanisum of housing price on consumption.Second,when exploring the effect of housing price on non-housing expenditure,this paper takes housing market sentiment and financial market development into the theory analysis,which has been ignored by previous literature.Tthird,this paper employs threshold regression,fixed effect model and endogenous switching regression model to ensure the results are unbiased and objective,which improves the methodology used in previous studies.The furture study can further explore the ansyletric effect and the dynamic of housing price on consumption with the availability of data.What is more,it is worthy of investigating how housing wealth affects households investiment,portfolio choice and happiness in the furture.