The Effect Of Housing Prices On The Consumption Of Residents From Different Income Groups

Consumption, investment and exports constitute three carriages which promote a country’s economic growth. Currently, economic growth is largely over-dependent on exports and investment, which leads to the increasing contradiction and risk of structural imbalances, and the sluggish domestic demand in our country. This situation is extremely detrimental to the growth of national economy. According to the classical western consumption theory, residents’income and stock of wealth are considered main factors affecting their consumption. With the boom of the real estate market over the last few years, real estate has already been the most important wealth part of our residents. The rising housing prices caused by China’s thriving real estate market may likely promote consumption in a way, and may also become the detriment of improving residents’ living standards. That how to increase our residents’ consumption while maintaining stable housing prices and healthy development of the real estate market to better promote consumption is worthy of studying.Real estate market has its regional characteristics. Housing prices in different regions and cities may vary considerably, especially against the background of uneven regional economic development. What’s more, the current income level of our residents is seriously imbalanced. Therefore, the empirical analysis of this paper will be focused on a particular city, Shanghai, as the case study, to study the effect of housing prices on consumption of different income groups, which is of more theoretical and practical significance.Based on the description of relative literature, consumption function, conduction mechanisms of real estate wealth effect and Shanghai housing market’s and residents’ consumption situation, and also taking the principle of data availability and timeliness into account, this paper selects related data of Shanghai from 2000 to 2013 issued by Shanghai Statistics Bureau to conduct an empirical analysis through establishing relevant model. Firstly, it uses the methods of ADF unit-root-test, Johansen co-integration test and Granger causality test to conduct the time series analysis with the purpose of studying the overall effect of housing prices on the consumption. Secondly, it uses the methods of ADF-Fisher and PP-Fisher unit root test, Kao cointegration test, the panel data model of variable coefficient and Granger causality test with the purpose of studying the difference of the effect of housing prices on the consumption of different income groups in Shanghai. Based on the result of empirical analysis, this paper comes to the conclusion that the rising of housing prices has a stimulating effect on the overall consumption of residents, but to the relatively weak extent; and its effects of consumption on the low-income and the high-income groups are insignificant; the effect of consumption on the low-income group is negative; for the middle-income and high-income groups, the effects are both positive, however with varying degrees. Based on the theoretical and empirical analysis, this paper analyzes the possible causes, and then makes the relevant policy recommendations.