Housing and Wealth Inequality: The Role of Financial Market Participation

This paper examines how homeownership and housing value appreciation may contribute to household wealth accumulation, and possibly widen wealth inequality. We argue that housing value appreciation may strengthen households' willingness to invest in financial markets through raising households' risk tolerance on investment and increasing the collateral value of housing. This investment channel benefits the wealthier households more, and further enlarges wealth inequality. Using China Household Finance Survey (CHFS) data in 2019, we lend empirical support to this argument and find it explain well on China's widening wealth inequality.