Income Gap,Housing Demand And Household Consumption

In recent years, household consumption in China has been sluggished. According to the "China Statistical Yearbook", by expenditure method of residents’ consumption rate in 2001 is 45.3%, but only 37.9% in 2014. It is generally believed that the expansion of income gap is one of the important reasons for this phenomenon. But as far as the author concerned, the existing literatures has almost ignored two important facts:(1) The consumption downturn is structural. According to the data released by the National Bureau of statistics, since 2003, the Gini coefficient of income in China dweller has been wandering at a high position of 0.48, but in the same period, the average housing area of Chinese family is getting bigger and bigger, car penetration rate is rising rapidly, the "cash of giving" is quietly rising.(2) The income gap and residents’ consumption may not be necessarily a negative correlation. For example, since the 80’s of last century, the problem of income inequation in the United States has been more and more serious, but the average household saving rate has decreased.This article argues that to make a reasonable explanation of the above phenomena need to consider two issues. First, household consumption preferences may not be independent of each other. In recent years, many studies show that conspicuous consumption of wealthy families have a significant demonstrative effect on other families. Consumption can be divided into the positional consumption and nonpositional consumption, Consumer focus on comparisons to goods which are the symbol of high social status(such as housing). Second, the impact of income inequality on consumption is quite different according to different economic systems. When the income gap become widening, if people can and dare to spend money earned in the future time to current consumption competition, the savings rate will be very low; on the contrary, if the credit market is not mature enough, and the social security system is not very perfect, increase savings will become the main way of households to smooth consumption.Therefore, this paper will conduct in-depth theoretical and empirical analysis of the relationship of income inequation and urban family consumption according to status seeking theory and based on China’s reality. I hope this paper can contribute to play a role in this field and can provide valuable policy recommendations for decision-making departments.This paper is divided into six chapters, the first chapter is introduction depart, the second chapter is the literature review depart. The third chapter focus on the theory and methods problem of the whole paper: from the theoretical perspective, this chapter explains the mechanism of how income gap influence family consumption by affecting the average housing value of reference group; and then under restricted conditions of intertemporal utility maximization, housing demand function and the corresponding consumption function are derived. This paper’s major differences from previous literatures lie in:(1) considering the influence of income inequality expansion to keeping up with the Joneses of housing. And on this basis, take the average house value of wealthier families as reference group level, analyze the house comparisons influence to consumption inhibition of different income level family.(2) respectively derived house expenditure models and consumption models under three cases, which are the mortgage purchase case, a one-time payment case and the future purchase case.The fourth chapter and the fifth chapter are the empirical research part. The task of the fourth chapter is conducting empirical analysis of the impact of income gap on the house demand of urban residents in china. First, define the reference group, which assumes that the family exists up comparison motivation and the region of the reference group are also defined; on this basis, check whether house expenditure has strong status characteristics, and whether there is a comparison motivation in urban family’s house demand. Finally, test whether there is a significant positive correlation between the income gap and the reference group house level, that is whether wealthier families’(reference group home) house demand will be significantly increased following to the widening income gap.The fifth chapter analyzes the influence of the house level of reference group on the consumption of middle and low income urban families. First, potential home buyers were identified; and then the influence of the reference group house level for these families to the total consumption and sub-category consumption is analyzed; Finally, the empirical results are used to measure the degree of household consumption inhibition lead by income gap by highlighting house comparison.The sixth chapter is the conclusion and suggestion depart. The main conclusions of this paper are:(1) the income gap has a significant positive effect on owner occupied house demand, if the income gap increase 1 percent, the per capita floor area will grow 0.54% on average;(2) there exist obvious keeping up with Joneses characteristics in house demand of China’s urban family, the expansion of income gap do produce inhibitory effect on the consumption of potential home buyers through highlighting the house comparison.(3) housing comparisons mainly inhibit family’s food, clothing and living(rent spending, water and electricity, property costs, etc.) etc. three basic living expenses. Finally, the policy recommendations are put forward from the perspective of narrowing income gap, imposing tax on high-end residential property, lowering housing prices, and further promoting financial reform.