Windfall gains and household consumption: Regression-discontinuity evidence from urban China’s preferential housing policies

This paper identifies the effect of windfall gains in housing wealth on household consumption in China, exploiting a “jump” in housing wealth generated by unexpected changes in urban China’s commercial housing policy in 2006–2010 that lowered the down payment ratio and property deed tax rate for units under or equal to 90 m² in size. A sharp regression discontinuity design applied to the China Family Panel Studies data reveals a substantial housing-wealth effect. Specifically, households with units just below 90 m2 spent 26.6 % more on household consumption (including clothing, daily expenses, transportation and communication, as well as education and entertainment expenditures) relative to their counterparts with units just above 90 m2. The effects of housing policies on household consumption persisted with prolonged policy exposure and were more pronounced in locations with greater policy-induced disparities in housing price and housing value growth rates on either side of the 90-m2 cutoff. The housing-wealth effect is also greater among older homeowners, multi-unit households, and households with savings, suggesting that the anticipation of higher future housing wealth and a reduced saving motive (rather than a collateral effect) work as driving channels.