The Effects Of Housing Prices On Household s Consumption

2 Literature Review Housing is always regarded as a main fortune of family. Thus the changes of housing price will affect household’s consumption a lot (Duli et al.ï ¼Å'2010). Theoretically, the rise of housing price can boost the households’ spending by â€Å"wealth effect† and â€Å"collateral effect†, it also can constrain consumer spending by â€Å"liquidity restrain effect† or â€Å"substitute effect†. The rise of housing price will raise family’s current fortune or improve the collateral scale which will enhance family’s borrowing capacity (Aokiï ¼Å'2002) and promote households consumption (Iacovielloï ¼Å'2004, Lindnerï ¼Å'2014). But, on the other hand, for those non-owned-housing families, they are forced to pay more rent or to save more due to the rise of housing†¦show more content†¦In addition, more households report they would cut back consumption as a direct response to house price falls than to house price rise (Mastrogiac omo, M., et alï ¼Å'2006, Gathergoodï ¼Å'2012). Relaxations of credit constraints are more likely explains for the observed correlation between wealth and consumption (Atalay, Whelan et al.ï ¼Å'2014). some scholars suggest liberate finacial constraint to enhance the average consumption-to-income ratio (Aron, Duca et al.ï ¼Å'2012, Atalay, Whelan et al.ï ¼Å'2013). Gathergood, J. (2012) condemned the borrowing constraint which results the cut of household consumption. there was no housing wealth effect before credit market liberalization in the US and the UK (Muellbauerï ¼Å'2008). The interaction between housing prices and household borrowing was substantially weaker before the financial deregulation in Finnish (Oikarinenï ¼Å'2009). Some scholars show their doubts to the â€Å"wealth effect†. Phang, S.Y. (2004) finds no evidence that house price increases have produced either wealth or collateral enhancement effects on aggregate consumption because housing is regarded as a kind of uncertain and risky asset which eventually constrain consumption whether the anticipation to housing price is rise or fall. Once we control for the endogeneity bias resulting from the correlation between housing wealthShow MoreRelatedEffects Of Housing Prices On China1068 Words   |  5 Pagessoaring speed of housing price has been warned by scholars and entrepreneurs (Jethro Mullen, A. S. 2016). According to the data from National Bureau of Statistics of China, Zhaoyingzi Dong, Eddie C.M. Hui and Shenhua Jia find that the consumption rate reduced while the housing price in China increased significantly during the period from 2000 to 2014. So, does the rise in housing price suppress consumption? 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