The Long-Term Impact of Household Debts on Household Consumption in the Context of High Housing Prices in China

Abstract

Abstract It is important to understand the factors influencing consumption patterns in China, a rapidly growing economy with high household debt. The main objective of this study is to investigate the long-term impact of household debt on household consumption using panel data from 2014 to 2020. Data for this paper is mainly derived from the China Family Panel Studies (CFPS) database for the four periods of 2014, 2016, 2018, and 2020 to examine the impact of household debt on current consumption and its long-term effect on consumption. An econometric model was adopted to analyze the data. The findings demonstrate that total household debt significantly lowers long-term household consumption. In contrast, housing debt has a more significant crowding-out effect on household consumption, and non-housing debt has no significant impact. These findings imply that higher levels of debt cause decreased consumption by forcing households to allocate a larger portion of their income toward house financing. In addition, we also find that increasing rural families’ leverage will have a greater negative impact on household consumption. These findings propose that the measures to address the issue of high household debt, particularly housing debt, are necessary to promote sustainable consumption patterns and support the well-being of households. The findings of the study highlight the significance of considering rural families' unique circumstances when developing debt management measures.