The Heterogenous Impact of Fluctuation of Housing Prices upon Consumption of Urban Households in China

This paper found that the increase in housing prices can significantly promote the consumption of urban households with housing in China. And the promotion effect increases with family’s net finance asset, i.e., the richer the families are, the more their spending rises. For the urban families without housing, the increase in housing prices inhibit their consumption. When housing prices rise by 1%, the consumption drop by 0.748%. The mechanism is that the increase in housing prices reduce the households’ marginal propensity to consume by higher precautionary saving motivation. As a whole, the increase in housing price can stimulate consumption, but the impact is very small. The consumption elasticity to housing prices is only 0.165; On the contrary, the wealth effect of housing assets will enlarge the gap of residents’ consumption and worsen social welfare. So it’s not feasible to promote consumption by increasing housing prices. In addition, the wealth effect has significantly heterogeneity by the family structure characteristics. JEL classification numbers: D11 D12 R21Keywords: house prices; consumption; wealth effect; heterogeneity