The effect of the housing provident fund on housing consumption and inequity risks

Abstract

Many emerging economies have established long-term collective saving schemes to support housing consumption. One of the most eminent schemes is the Housing Provident Fund (HPF) in China, whose policy effect is highly debated. Based on data from the 2013 China Household Finance Survey, this paper evaluates the heterogeneity of the HPF's effect on the housing consumption of households with different incomes from three dimensions: housing purchases, housing investment and age at first housing purchase. We further estimate the effect of the financial support of the HPF on the participants' housing pressure. Our results suggest that the HPF has an overall positive effect on housing consumption and that the financial support reduces households' housing pressure by 14% on average. However, the HPF provides insufficient financial support to low-income participants in housing purchases; in contrast, the HPF promotes housing investment and earlier purchases of houses among high-income households. Given the soaring housing prices in China, the HPF seems to not only entail inequity but also aggravate the inequality of wealth distribution and widen the gap between the rich and the poor. We conclude by proposing some valuable policy implications for China's HPF system reform in the future.