Housing Price, Consumption, and Financial Market: Evidence from Urban Household Data in China

Abstract

This paper aims to establish a new integrated analytic framework, within which to analyze the relationship between housing price and household consumption, financial market, and household characteristics (homeownership and credit conditions) to explore how to use these links to help industry optimization and urban development in the long run. The authors first present a behavioral economic model to show the asymmetric responses of consumption to housing price and the heterogeneous role of financial marketization across different household groups. Then, based on China Family Panel Studies (CFPS) 21, 212, and 214, the authors find urban housing price influences some nonessential expenditure items like education, medical, and transportation, but such influence is subject to financial marketization. Further, the positive moderating effect of financial marketization on consumption is significant on homeowners, particularly for those being constrained. However, this moderating effect is not significant among renters. These heterogeneous responses offer meaningful implications for policy makers in formulating relevant long-term economic strategies that not only spearhead industry optimization and financial policy reform but also transform housing wealth into consumption, along with bolstering economic development in China.