Housing prices and household consumption: a threshold effect model analysis in central and western China

Abstract

The relationship between housing prices (HP) and household non-housing consumption (CON) is a key topic worldwide. By developing a panel threshold model and utilizing data from 18 provinces in central and western China from 2005 to 2020, this study investigates the impact of housing prices on household non-housing consumption given housing credit constraints. The results show that (1) housing credit constraints play a single threshold role in the impact of housing prices on household non-housing consumption; (2) the elasticity of housing price fluctuation on household non-housing consumption was negative in the western region during the entire sample period, and the elasticity of housing price fluctuation on household non-housing consumption decreased when housing credit constraints exceeded its threshold value; (3) the effects of housing price fluctuation on household non-housing consumption in the central region changed from negative to positive when housing credit constraints exceeded its threshold value. These outcomes implies that housing credit constraints are not a factor driving a low household non-housing consumption rate in the studied regions. Importantly, our findings suggest that unaffordable housing prices and homeownership linked to better public education resources in combination were a key factor leading to a low non-housing consumption rate in the studied regions. The main contribution of this paper is to supplement the current academic research on low levels of consumption in underdeveloped regions of China and the impact of housing prices on consumption.