Housing and saving with finance imperfection

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

3 Scopus Citations
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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)207-248
Journal / PublicationAnnals of Economics and Finance
Volume14
Issue number1
Publication statusPublished - 2013
Externally publishedYes

Abstract

In this paper, we construct a life cycle model with housing demand and incomplete market to explore the relationship between housing demand, accompanied with underdeveloped housing finance, and the household saving rate in China. We investigate two types of finance imperfection: a) the high down payment ratio required by central bank, and b) the unsmooth home equity withdrawal due to the prohibitive nature of refinancing. Without access to home equity withdrawal, households have to hold a considerable amount of non-housing asset such as deposit, cash, and bond as it is dificult for them to insure against negative income shocks and retirement via housing asset. This helps to account for the rising household saving rate during the past 10 years in China where commercialized housing market had been emerging. Yet interestingly on another note, we find higher down payment ratio leads to a substitution between housing and non-housing assets, leaving the aggregate household saving rate almost unchanged.

Research Area(s)

  • Down payment, Home equity withdrawal, Housing, Saving

Citation Format(s)

Housing and saving with finance imperfection. / Chen, Yanbin; Li, Fangxing; Qiu, Zhesheng.

In: Annals of Economics and Finance, Vol. 14, No. 1, 2013, p. 207-248.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review