The Research On The Influence Of Housing Asset Value Changing On Household Consumption

Chinese housing prices have been rising rapidly since the housing reform in 1998,and the real estate industry has gradually become the pillar industries in national economy.The rapid change of housing price has show an important influence on the macro economic situation and micro household consumption behavior.According to the Chinese household financial survey organized by Southwestern University of Finance and Economics in 2017,the home-ownership rate of Chinese family has reached to 89.68%,which means that the housing asset has become the most important part of family wealth.In this context,it is becoming an important topic in the field of family financial research to discuss the relationship between the housing assets and household consumption.As the emerging field of finance research in recent years,family finance is drawing more and more attention.In the speech made by John Campbell,the chairman of financial institute,in 2006,he pointed out that the fimily financial research,is to analysis how the family to achieve the intertemporal optimal allocation of resources and achieve their specific goals,by using different kinds of financial instruments.And according to the consumption-based asset pricing theory,the individual dicisions can be divided into two stages,one is the optimal portfolio decisions in a given saving level,and the other is the saving/consumption decisions in a given portfolio level.In the study of modern consumption theory,the relationship of asset’s price fluctuations and household consumption has already draw attention of scholars and policy makers.However,most early studies focused on the relationship between financial assets and household consumption.In late 1990s,global stock markets fell sharply,but the consumption level of household didn’t decline significantly,which means that the house assets may play a role.In recent years,Chinese scholars also pay some attention on this topic,but barely in micro area due to the limitation of data.China’s real estate market entered a rapid development stage since 2003,however,the development of real estate is not stable.The real estate market occurred almost every two years in the past one decade.Facing the frequent change in the real estate market,it is necessary to clarify the relationship between the value of family housing asset and residents’ consumption behavior.This paper tries to study the following questions:first can the change of family housing value caused by the rise of housing price bring a continuing growth of residents’ consumption?In other words,whether the housing assests in China shows a significant wealth effect?Second,how does the house asset affect residents’consumption,namely through what channel does the wealth effect occurred?Finally,the Chinese family has not experienced a long time of house price falling,so will it cause a sharply cut of residents’ consumption if the housing price show a massive decline?Based on the support of a public large database,this article analyzed these questions theoretically through the view of micro household,and did the empirical test by building a micro panel data.At the beginning,we focus on investigating whether the change of housing value will affect households’consumption,which can be said as whether the wealth effect exists.Based on the life cycle and permanent income model,we add the housing asset and analysis the mechanism of it.Then we test the existence of the wealth effect by building household panel data.After the test of wealth effect,we explore the effect of channel between these two variables.The domestic literature has a systematic summary on the channel already,but couldn’t do the empirical test because of limitation of research conditions.Therefore,this article summary the channels into three categories,the pure wealth effect,the liquidity constraints and the precautionary saving,and test their existence through the panel data.The last research content is about the characteristics of nonlinear and asymmetric in the wealth effect.Based on the prospect model,the individual decision model has the characteristic of sensitive decline and loss aversion,which are the characteristics of nonlinear and asymmetric in this issue.We test the existence of nonlinearity and asymmetry through regression analysis,and menly focus on the asymmetry character,whicn means that the household consumption will decrease more rapidly when housing price falls.Summarizing the full paper,the main conclusions follow as:(1)The wealth effect of housing assets exists in Chinese family after 2010,which means that the household consumption will increase significantly with the rise of housing assets value,when other factors were controlled.From the result of empirical regression,the change of house value has a significant influence on urban household consumption.This result has shown on both the one-house family and families with multiple houses.For the urban family,the influence of housing assets to household consumption has becoming bigger than financial assets.More importantly,the influence of housing assets may become more important than household income in families with multiple houses.The wealth effect of housing assets stay exist,after considering the difference of region,city and income level.The regional heterogeneity mostly shows in housing price level in different regions.The influence becomes bigger from the low level to high level.Also,families of different city level showed a strong heterogeneity.Compared with other regions,families in first-tier cities show stronger wealth effect of housing assets.And the effect is also bigger in big cities than in a small town.In addition,the house income level has also shown the heterogeneity.The wealth effects of housing assets are stronger in high income group than low income groups.Unexpectedly,the wealth effect of housing assets also stays in the rural area.Our result showed a significant influence in rural household,but the influence is smaller than the urban household,because of the limitation of housing transactions.Also,the influence of housing assets is smaller than the financial assets in the rural area.(2)For families who rent houses,their consumptions will also increase with the rise of housing price,in which shows the crowding-out effect of families who rent with house and the substitution effect of families who rent with no house.For families who rent with house,their consumptions increase along with the rise of their own property value.And for families who rent with no house,their consumptions also show a significant relationship with the housing price.The above phenomenon of rental households can be explained by their will of buying a house,after joining family purchase intention in the regression,the results show that the wealth effect will reduce in families with unmarried men more than 25 years old,because of the will of buying a house.For families with good economic conditions(who rent with house),their consumption will decrease with the rise in the housing assets price,when they have buying wills.For families with poor economic conditions(who rent with no house),their consumptions stay increase with the rise in the housing assets price,whether they have buying wills or not.Because of the rapid rise of housing price,poor families cannot afford the house,they can only give up the buying will and release the savings,which make the consumption increase.(3)For the influence channel of wealth effect,the channel of pure wealth effect and precautionary saving are more apparent,and the liquidity constraints is not significant.The pure wealth effect of housing assets is clearly existed in the Chinese families.By distinguishing the sample to one-house families and families with multiple houses,I found that the housing asset value would affect household consumption more in the multiple-house families,which means that for these families who can sell their houses anytime,houses become the most important assets in family portfolio.And the change of house value could affect the household consumption significantly.After checking the channel of liquidity constraints and precautionary savings,using the threshold regression method,I found that in Chinese urban families,the housing asset value affect household consumption mostly by channel of precautionary savings,and the liquidity constraints channel may not exist.Also,after considering the predictable and unpredictable changes in housing wealth,the conclusion is same as the result of threshold regression.(4)The wealth effect of housing asset value has the characteristic of nonlinearity and asymmetry.When the housing price falling,the declining degree of household consumption are far more high than when housing price rising.The wealth effect of housing asset has a significant nonlinearity characteristic.When the housing price rising,the relationship between housing asset value and household consumption present inverted u-shape,which means that the effect will be negative when the housing price reached a high point.This result is same as the analysis of the prospect theory,that the marginal changes will be diminished when earnings gradually away from the reference point.The wealth effect of housing assets also has a significant asymmetry characteristic.When the housing price falling,the declining degree of household consumption are far more high than when housing price rising.This result is also same as the analysis of the prospect theory,that losses are more important than gains in peoples’ mind.These two results are both proved in one-house families and multiple-house families.