Tightening Belts to Buy a Home: Consumption Responses to Rising Housing Prices in Urban China

54 Pages Posted: 24 Sep 2018 Last revised: 11 Jul 2019

See all articles by Andrew Waxman

Andrew Waxman

University of Texas at Austin, Lyndon B. Johnson School of Public Affairs, Students

Yuanning Liang

Cornell University

Shanjun Li

Cornell University - School of Applied Economics and Management

Panle Jia Barwick

Cornell University - Department of Economics

Date Written: August 1, 2018

Abstract

This paper measures the impact of housing price changes on household consumption at the city level using the universe of credit and debit card transactions in China from 2011 to 2013. In sharp contrast to the literature on the U.S. housing market, our analysis shows a large and negative housing price elasticity of consumption: a 10% increase in housing prices would lead to a 9.1% reduction in non-housing spending. We argue that the negative elasticity is driven by the combination of a strong investment incentive in housing and heavy borrowing constraints faced by households. This is corroborated by the finding that households increase their savings as housing prices increase. Relative to the existing literature, our analysis helps to better explain how low- and middle-income households adapt to the limited investment venues and surging housing prices in the context of persistently high savings rates.

Keywords: Consumption, House Price, Savings

JEL Classification: R2, R3

Suggested Citation

Waxman, Andrew and Liang, Yuanning and Li, Shanjun and Barwick, Panle Jia, Tightening Belts to Buy a Home: Consumption Responses to Rising Housing Prices in Urban China (August 1, 2018). Available at SSRN: https://ssrn.com/abstract=3244054 or http://dx.doi.org/10.2139/ssrn.3244054

Andrew Waxman

University of Texas at Austin, Lyndon B. Johnson School of Public Affairs, Students ( email )

2300 Red River St., Stop E2700
PO Box Y
Austin, TX
United States

Yuanning Liang

Cornell University ( email )

Ithaca, NY 14853
United States

Shanjun Li

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States

Panle Jia Barwick (Contact Author)

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States

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