The Rising Of Housing Price And Chinese Residents’ Consumption:Wealth Effect Or Crowding-out Effect?

The high price of housing and low levels of household consumption rate is the two major problems which our country is facing now. But we cannot fully know whether it is useful to increase low levels of household consumption rate and optimize the economic structure by control rapidly rising of the housing prices.We found different from other Investment goods, the real estate has dualities which are invested and consumption. The investor could achieve hedging and values added through invest the real estate. Residents can meet the demand for housing consumption through buying house. The investor in housing will attain profit when the price of the house is rising. They can get more loans to increase the current consumption by realizing the profit or mortgaging in the market. We call the prices rise stimulating dweller consumption as wealth effect. The price of housing rising will increase the rent and the cost of purchase in future for renter or buyer. They save more for renting or buying which lead to squeezing current consumption. We call the effect price raising leading to squeezing current consumption as crowding-out effect. Usually, there are real estate investors and potential buyers in a country or area. They constitute the market of the real estate. So the housing price has wealth effect and the crowding-out effect to the consumption for the resident need to study and analyze.Through literature we find that many scholars use different macro data and micro data obtained different results. Some manifested as wealth effect, some manifested as crowding-out effect, and the others show the rising of housing prices have weak or no impact to consumption. This is associated with national economic and social environment, and empirical analysis that various scholars using. Through the establishment of the utility optimization model we derive the basic metering equations of household wealth and consumption. The basic metering equations is consistent of the permanent income theory, the life-cycle theory, and LC-PIH model. Then this paper select35cities for the study, collect the data of per capita consumption expenditure of urban residents and the average selling price of real estate, real Estate Investments, per capita disposable income of urban residents during2002and2012. From macro perspective, we get the Empirical Analysis of results that per capita consumption expenditure of urban residents will drop about0.15%if every1%increase in house prices. So for our residents, the result shows crowding-out effect, the rising housing prices restrain our consumption.We find the reason of wealth effect less than crowding-out effect by analysis the China’s economic and social situation, includes the following five:First, the information of the real estate secondary market channels are not clear. Second, China’s real estate market and the mortgage market is still underdeveloped. Third, the consumption concept of our residents is more traditional than other country. Fourth, our real estate market has a strong rigid demand. Fifth, the income gap of our country is large.So for these reasons, we should develop the housing finance market and improve the housing finance system, control the real estate loans and bank credit risk, optimize real estate supply structure, strengthen small and medium-sized, low-cost housing and affordable housing construction, regulate the rental housing market, Strengthen Social Security.The innovation of this paper is that we study the impact of real estate prices on the consumer from the angle of income and wealth. It provides a theoretical basis to build the model. Then we study the effects that the rising of housing price have on three types household’s consumption from two transmission mechanism. The result provides a reliable basis for the current real estate control policies of our government departments.