Understanding the Role of Homeownership in Wealth Inequality: Evidence from Urban China (1990-2018)

Abstract

Many scholars have evaluated the wealth creation effects of homeownership over different periods and have agreed on the positive role of homeownership. However, there are contradictory mechanisms regarding the impact of homeownership on wealth inequality. Based on panel data from 1995 to 2018, this paper found that the expansion of the homeownership rate was an equalizing force in the distribution of wealth during the era of housing reform from 1995 to 2002, driven by the housing acquisition of low- and moderate-income households (LMI) and middle-class housing conversion. The forces were exogenous and dominated by the redistributive logic. In the post-reform era after 2010, the decline in the homeownership rate led to the concentration of wealth distribution that was driven by the widening wealth gap between owners and non-owners, which was an endogenous market driving force. The result shows that there is an apparent discontinuity in the trends of homeownership and wealth inequality when new immigrants cannot afford the price of housing in the city. The wealth position of the middle and lower class (mainly new immigrant non-owners) was crippled not only by the inaccessibility of housing ownership, but also by the reinforcing effect of the housing price upsurge. This research reveals the differential effects of homeownership on wealth inequality and the policy implications on the redistributive effects of the allocation of housing resources.