Housing demand and household saving rates in china: Evidence from a housing reform

Binkai Chen, Xi Yang, Ninghua Zhong

Journal of Housing Economics, Volume 49, September 2020

Recommend reason

Chinese government abolished the employer-based public housing system in 1998, which created an exogenous variation in housing demand among urban households. This paper makes use of this reform and adopts a difference-in-difference approach to study the effect of this reform on household saving rates.

About the author

Binkai Chen, School of Economics, Central University of Finance and Economics

Xi Yang, Department of Economics, University of North Texas

Ninghua Zhong, School of Economics and Management, Tongji University


China, Urban housing reform, Household saving

Brief introduction

In the past few decades, the Chinese housing market has dramatically changed. China’s urban household saving rate has increased markedly since the mid-1990s, accompanied by a dramatic increase in home ownership. Is there a causal link between those two phenomena? This paper takes advantage of a unique natural experiment in China, which reformed the nationwide employer-based public housing system in 1998. This reform created an exogenous variation in housing demand among urban households. This paper shows that the abolishment of public housing in China triggered a rise in the household saving rate. In particular, the reform distributed the original public housing stocks unequally and, thus, led to divergent saving behaviors among urban households. Compared with beneficiaries of the old housing system, households that missed the benefits experienced an increase of about 2.2% in annual saving rates during the reform period (1998–2001). After the reform, with rising housing costs and an underdeveloped mortgage market, the divergence in saving behaviors continued. We find that private housing residents saved about 1.3% more annually than privatized public housing residents. We also provide evidence that suggests that the 1998 housing reform affects household saving behaviors even after the reform period (2002–2009).