Real Estate Prices and Consumption in China: 1998-2011

摘要

The government of China puts forward expanding domestic demand to ensure the healthy and continuing development of the China's economy. In theory, the changes of real estate prices may influence the growth of consumption through wealth effect and then influence economic development. The paper studies the relationship between real estate prices and consumption in China, with China's 30 provinces, municipalities, autonomous regions' annual data in 1998-2011, using an individual fixed effects model. The results show that the rise of real estate prices in China can promote consumption based on credit by increasing the value of the collateral, while can reduce consumption based on consumer's own wealth by increasing deposit for future real estate purchase. Totally, the rise of real estate prices in China suppresses consumption. Therefore, the sustaining and effective regulation of real estate market is conducive to the growth of domestic demand and then is conducive to the sustaining and healthy development of the China's economy.