The paper “Housing Prices, Housing Demand, and the Debt Ratio of Chinese Households”, co-authored by Yaqi WANG Associate Professor of School of Finance at CUFE and Guangsu ZHOU Associate Professor of School of Labor and Human Resources, Renmin University of China, was published in the well-known journal “Journal of Financial Research”, the 6th issue of 2019.
Summary: Mian et al. (2013) and Chen and Yang (2017) portrayed the impact of housing price changes on microeconomic behaviors such as household consumption and savings. Asset securitization and subprime mortgages have stimulated household debt growth and household credit availability (Casolaro et al., 2006). Based on Chinese Household Finance Survey data, Li et al (2016) found family housing assets account for as much as 70.1% of total household assets in 2015. On these studies, this paper focuses on the impact of housing price changes on household leverage, further explores the main channels of housing price changes on China's household leverage, and explores the heterogeneity impact on households with different characteristics.
Based on household level housing and debt information drawn from the Chinese Family Panel Studies (CFPS) for 2014 and 2016, we show that the appreciation in house prices indeed contribute to the increase in household leverage. Quantitatively, we find that a 100% increase in the price of a house leads to 288. 1% and 39. 2% increases in household debt and leverage, respectively. By further splitting our sample into several subsamples, we also find that the house price movements have heterogeneous effects on household leverage. Specifically, we find that urban hukou households with spouses and children have a greater increase in household leverage than rural hukou households without spouses and children. Moreover, we find that some of the data patterns are at odds with or cannot be well explained by the “collateral channel”. Therefore, we propose two additional channels, the “financing channel” and the “speculation channel”, and confirm that these channels have a strong influence on our sample. Furthermore, we find that most households finance their housing purchases by bank loans instead of private lending.
Keywords: Housing Price Debt Ratio Housing Demand