Flight to Housing in China

67 Pages Posted: 15 May 2019 Last revised: 16 May 2019

See all articles by Feng Dong

Feng Dong

Tsinghua University - School of Economics and Management

Jianfeng Liu

Shanghai University of International Business and Economics

Zhiwei Xu

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Bo Zhao

Peking University

Date Written: March 1, 2019

Abstract

Using household-level survey and housing transaction data, we detect the flight to safety vis-a-vis housing in China: Great economic uncertainty causes the prices of housing assets to soar, especially those of good quality. To stabilize housing prices, China has imposed purchase restrictions on the housing market. In this paper, we study the aggregate and distributional effects of this housing policy by developing a two-sector macroeconomic model with heterogeneous households. An uncertainty shock generates a countercyclical housing boom by shifting outward households' demand for housing as a store of value. A vibrant housing sector then leads to an economic recession by crowding out resources that could have been allocated to the real sector. Our quantitative analysis suggests that the policy limiting housing purchases effectively curbs surging housing prices. However, the policy restricts households' access to housing that can be used to buffer idiosyncratic uncertainties, creating a larger consumption dispersion. Consequently, the housing policy creates a trade-off between macro-level stability and micro-level consumption risk sharing.

Keywords: Heterogeneous Households, Store of Value, Housing Policy, Aggregate and Distributional Effects, Consumption Risk Sharing.

JEL Classification: E21, G11, G18, H31, R21

Suggested Citation

Dong, Feng and Liu, Jianfeng and Xu, Zhiwei and Zhao, Bo, Flight to Housing in China (March 1, 2019). Available at SSRN: https://ssrn.com/abstract=3355406 or http://dx.doi.org/10.2139/ssrn.3355406

Feng Dong

Tsinghua University - School of Economics and Management ( email )

School of Economics and Management
Tsinghua University
Beijing, Beijing 100084
China

HOME PAGE: http://fengdongecon.weebly.com

Jianfeng Liu

Shanghai University of International Business and Economics ( email )

Room 427, Bocui Building, NO.1900, Wenxiang Road,
Songjiang District,
Shanghai, Shanghai 201620
China
86-18616291090 (Phone)

Zhiwei Xu (Contact Author)

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China

Bo Zhao

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

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