Housing boom and non-housing consumption: evidence from urban households in China

We study the response of non-housing consumption to housing price movements in urban China, which has been witnessing a real estate boom ever since 2003. Using Urban Household Survey data, we estimate an elasticity of consumption with respect to housing price of 0.06-0.07 for homeowners. Moreover, we find that the average marginal propensity to consume out of housing wealth is 0.025-0.03. We employ a novel instrumental variable associated with higher-education expansion to ensure that these estimates are causal effects. As for renters, we show that their consumption response to housing shocks is insignificant. We further reveal that the marginal propensity to consume is larger for homeowners who are more credit constrained.