Effect Of Real Estate Price Fluctuation On Consumption Of Urban Residents In China

In 1998, China’s housing system has changed, and then the marketing system of housing gradually replaced the welfare-oriented system based on distribution of public housing. In the past twenty years, real estate price keeps rising in general. In the process of China’s “New Normal” for economy, the extensive way of economy is gradually taken place of by the structural economy. As a result, potential consumption gets to be free, and consumption continues to play a fundamental role in promoting economic development.In November, 2015, the policy of reducing real estate inventory was established in order to ensure a stable real estate market and stimulate the potential of consumption growth driven by the real estate market. The real estate market involves in production, consumption, and investment, and a healthy and stable real estate market has great significance to economic development. On the one hand, the higher and higher real estate price can promote economic growth. On the other hand, if the price of real estate is too high, it will also inhibit consumers’ power of consumption. Therefore, the study on how the fluctuation of real estate price has influence on consumption may have government enacted little more reasonable policies, so as to accelerate the healthy development of the real estate market,and go on playing an active role in consumer-driven economic growth.In this paper, some work will be done by means of combining theoretical analysis with empirical analysis and it will cover the following contents. Firstly, the paper will present some relevant literature of research on the real estate market. Secondly, it will analyze the wealth effect and the crowding-out effect that the fluctuation of real estate price brings to the consumption of urban and rural residents via establishing the theoretical framework,LC-HIP. At last, this article will systematically analyze how the fluctuation of real estate price affects total consumption and spending structure by using data from 2000 to 2014 in 31 provinces bonding with moment estimation of the two-step system. The empirical analyses show these results. First, during the process of analyzing the influence that the increasing real estate price has on total consumption, it can be point out that no matter how the argumentation goes on, keeping eyes on the whole country or three regions by dividing this nation, the higher price in real estate market virtually demonstrates the crowding-out effect for consumption. That is, the rising real estate price leads total consumption to declining. Second, in the structural analysis, there are two distinctive effects on folks’ non-residential consumption and residential consumption with thegrowing real estate price. As for non-residential consumption, its effect is the wealth effect,while the other shows the crowding-out effect. Third, the eastern, central and western areas in varying degrees will be affected with unstable price of real estate. Compared with the other two, the eastern region is most strongly influenced owing to its great environment for economic development and its favorable sensitivity in economy. All in all, consumption is indeed related to the real estate price, and the performance of crowding-out effect is above that of wealth effect. In other words, excessively rising house price cannot boost consumption spending. Instead, it is likely to reduce it.Taking this trend into consideration, the government should play its positive role in regulating and controlling house prices by way of imposing increasing tax on speculative housing, adjusting interest rate, restricting the speculative behavior on home purchases,and enhancing the supply of land for construction. In the meanwhile, multilayer housing system should be constructed for the purpose of activating real estate market. At the same time, the governments are supposed to balance social resources in the eastern, central and western areas and reduce economic disparities among them. After taking a string of reasonable moves, the mode that the consumption in the real estate market drives the total growth in the economy will exert positive effects.