Housing Demand and Household Saving Rates in China: Evidence from a Housing Reform

Abstract

China's urban household saving rate has increased markedly since the mid-1990s, accompanied by a dramatic increase in homeownership. Is there a causal link between those two phenomena? This paper takes advantage of a unique natural experiment in China, which reformed the nationwide employer-based public housing system in 1998. This reform created an exogenous variation in housing demand among urban households. Using a difference-in-differences estimation strategy, we find evidence that the reform increased household saving rates during the reform period (1998-2001) by shifting the cost of housing services from the state to households. We also provide evidence that suggests that the 1998 housing reform affects household saving behaviors even after the reform period (2002-2009).

Keywords: China, urban housing reform, household saving

JEL Classification: D14, D12, E21