Housing Market and Household Consumption in Urban China: A Debt Perspective

Abstract

Urbanization precipitates substantial economic transformations, with housing markets playing a pivotal role. The expansion of cities escalates housing demand, subsequently increasing housing debt, which is a crucial factor influencing household consumption. This study utilizes data from six rounds of the China Family Panel Studies (CFPS) spanning 2010 to 2020 to investigate the impact of housing debt on household consumption in urban China. Given the dynamics changes in housing debt status, as well as the endogeneity problems caused by reverse causality and selection bias between households’ debt decisions and consumption behavior, this study employs both the difference-in differences with multiple periods and groups (DIDM) model and the two-way fixed effects model. The results show that the average consumption expenditure of households with housing debt is 14% higher than those without. A 1% increase in housing debt size correlates with a 0.011% rise in consumption. Moreover, this positive effect is more pronounced among low-income households and those with older household heads, as well as those owning multiple properties. Compared to non-durable consumption, the impact of housing debt is more substantial on durable consumption. Further mechanism analysis reveals that the effect of housing debt on household consumption is primarily driven by an increase in housing assets, spurred by the rising housing prices. This study underscores the importance of integrating housing debt management within the framework of sustainable urban development, which not only ensures equitable access to housing but also fosters the promotion of sustainable consumption.