The Impact of House Price on Urban Household Consumption: Micro Evidence from China

Abstract

The impact of house prices on consumption is an important concern for academics and policy makers. Several studies have documented that house price changes have an impact on consumption; however, there is far less consensus on how house price changes affect consumption in China. The purpose of this paper is to examine the impact of house prices on household consumption in urban China and to identify the mechanisms behind the impact. This study measures the impact of housing price changes on consumption at the household level, using research data from 71,548 home-owning households in the 2011–2019 China Household Finance Survey database. Our analysis shows that housing prices have a significant negative effect on consumption, with a 1% increase in the value of a household’s property causing a 0.0034% decrease in household consumption, an effect that is significant for households that own a home and for those in the eastern and central regions. We find that rising house prices cause an increase in households’ precautionary savings, which is the main mechanism through which house prices affect consumption in China. Furthermore, the impact of house prices on consumption is asymmetric, with consumption moving in the opposite direction when house prices rise but not when house prices fall. This study provides meaningful insights for policy makers on the usefulness of building a healthy and stable housing market to expand consumption and revitalize the economy.