Research On The The Impact Of Housing On Household Risky Assets Choice

Since the reform and opening up more than 40 years ago,China has made great achievements in social and economic development.In 2020,China’s GDP exceeded to 10.3trillion in U.S.dollars,and the per capita GDP has already exceeded to 10,000 U.S.dollars.The economic growth rate has leaped to the forefront of the world.At the same time,people’s living standards and the life quality have been greatly improved.During the "14th Five-Year Plan" period,China will enter into a new stage of development under “dual circulation strategy” background,which is a new development pattern with the domestic cycle as the main body and domestic and international cycles as the mutual promotion.The "14th FiveYear Plan" proposal has firmly grasped the principal contradiction of our society,and put forward a series of new policies to improve people’s livelihood and welfare,and raised the level of social construction,so that we have more new expectations for the future.Among them,"Increase urban and rural residents’ property income through multiple channels" has been received extensive attention from the whole society,which is most closely related to people’s livelihood and welfare.The behavior of residents’ risky asset choice is directly related to the household property income and welfare level.Appropriately holding risky assets is of great significance to improve the household’s welfare level can effectively promote economic prosperity and realize “The Chinese Dream”.As a focus issue of the whole society,housing is always an important livelihood issue,which plays an important role in shifting the economy situation of "Off Real Economy to Virtual Economy " situation.Housing is also a key factor affecting the healthy development of economy and society.However,there are still more prominent problems in the development of real estate industry and capital industry,such as real estate prices are high,the supply and demand are imbalanced,mortgage loans have accumulated in the residential sector,residents’ leverage ratio has risen rapidly,capital market is not standardized enough,and residents’ stock market participation is low.On the principle of “The house is used for living,not for speculation,stabilizing land prices,the housing prices,and the expectations,solveing the major problems of housing in big cities,and helping new citizens and young people to ease housing difficulties.” It is particularly important to make debt risks prevention in resident’s sector,accelerate the construction of multi-level capital markets,broaden residents’ investment channels,and increase residents’ property income.Therefore,the effect of housing on the household’s financial and economic behavior has also received extensive attention.Therefore,this research deeply explored the influence of housing on household risky asset choice,including its mechanism,both in theoretical and empirical aspects.The main findings of this research are as follows:Firstly,in terms of the theoretical analyze: based on the previous research and the characteristics of China’s housing loan market,this research expanded the existing model in terms of housing debt.In the theoretical part of this research,four hypotheses are obtained,which are as follows: Hypothesis 1: Net housing equity promotes households’ risky assets choice,which is manifested as a "wealth effect";housing wealth ratio inhibits households’ choice of risky assets,which is manifested as a "crowding effect".Hypothesis 2: The "wealth effect" promotes the risky assets choice by increasing the degree of diversification effect and increase the tolerance for risk aversion;the "crowding effect" is reduced by increasing illiquidity risk and reducing tolerance for risk.Hypothesis 3: Formal housing debt promote households’ choice of risky assets,while informal housing debt inhibit households’ risky assets choice.Hypothesis 4: Housing debt affect the risky assets choice by affecting lifecycle household wealth;formal housing debt increase the lifecycle household wealth and promote their choice of risky assets;while informal housing debt reduce the level of household wealth and inhibit the risky assets choice.Secondly,the current situation of Chinese households’ housing and risk assets allocation is as follow: according to the China Household Finance Survey(CHFS)data,there are still unreasonable asset allocation phenomena in Chinese families,and the unreasonable phenomenon that the proportion of real estate is too high and the proportion of risk assets is not enough still exists.Thirdly,the impact of housing wealth on the choice of household risk assets: based on the theoretical derivation,this research used the survey data of China’s household finance from2013 to 2017 to conduct an empirical test.Housing equity has positive effect on household risky assets choice through the increase in diversification effect and risk tolerance,while housing ratio has negative effect through the increase in illiquidity risk and decrease risk tolerance.Using the China Household Finance Survey(CHFS)data from 2013 to 2017,this article instrument housing equity and housing ratio by the province-level housing price to capture the housing-market-supply-driven price.This research continues to find that the exogenous rise in housing equity promotes risky asset choice while the exogenous rise in housing ratio impedes it.Further analysis shows diversification effect and risk tolerance are the mechanism that housing equity has positively affect the risky asset choice,while illiquidity risk and risk tolerance are the mechanism that housing ratio has negatively affect the risky asset choice.Heterogeneity analysis show that the positive of housing equity on portfolio choice is more visible in households with older household heads,higher level of education and financial literacy;the negative effect of housing ratio on household risky asset choice is more pronounced in the sample households with younger households’ heads,lower levels of education and financial literacy.By using a series of robustness test,the main results are still robust.Fourthly,the effect of formal housing debt and informal housing debt on household risky asset choice: theoretical analysis shows that housing debts with different borrowing channels have different effects on household risky asset choice through household wealth mechanism.We instrument two kinds of housing debt by the per capita city-level land supply to capture the housing-market-supply-driven debt size.Using the China Household Finance Survey(CHFS)data from 2013 to 2017,we continue to find that the exogenous rise in formal housing debt promotes risky asset choice while the exogenous rise in informal housing debt impedes it,especially for the household with higher interest.Further analysis shows household wealth is the mechanism that housing debt affect the risky asset choice.Heterogeneity analysis show that the effect of formal housing debt on portfolio choice is more significant with households in urban area,east region,developed cities,and multiple housing simple;On the contrary,the informal housing debt is more significantly make “crowding out”effect on portfolio choice with households in rural area,western regions,underdeveloped cities,with single housing simple.By using kinds of robustness test,such as cross-section estimation,replacement of instrumental variables,restrict of the adverse causal samples,different definitions of dependent variables.The results still show that formal housing debt promotes risky asset choice while the exogenous rise in informal housing debt impedes it.This provided us a useful reference for improving household welfare.Fifthly,the policy recommendations: the conclusions of housing wealth on the risky assets choice indicated that the reasonable and healthy development of the real estate market will promote the healthy development of the financial market.However,the excessively high housing prices will make the family wealth be excessively "bound" by the housing,and seriously "crowding out" the household investment,which especially visible for younger families,families with lower levels of education and financial literature,which is not conducive to the increase of family property income and the improvement of welfare levels.Accordingly,from the perspective of real estate side,it is urgent to accelerate the construction of a long-term mechanism for the healthy development of the real estate market,strengthen the construction of the housing market system and housing security system,and solve the housing problems of new citizens and young people with housing difficulties.From the perspective of the capital market side,it is necessary to standardize the circumstances of the capital market,accelerate the construction of multi-level capital markets,broaden the investment channels of residents,guide more funds to flow into the capital market rationally,and increase residents’ property income and improve welfare.From the perspective of residents’ side,it’s important to improve the education level of residents,especially strengthen financial education,so that more people become qualified investors and can benefit from risky financial investment.The conclusions on the housing debt on risky assets choice indicate that the development of the formal credit market will promote residents’ participation in the financial market,while private lending will have a serious inhibitory effect on residents’ participation in the financial market,especially for rural,underdeveloped areas and one house only households.Therefore,it is particularly important to adhere to the macro-prudential perspective to guard against the debt risks of the resident sector under the strict policy orientation of "the house is used for living,not for speculation." On one hand,residents’ formal financial financing channels should be broadened,the threshold of formal financial financing should be lowered,and the role of inclusive financial policy guidance and incentives should be brought into play,so that financial services can benefit more people,especially in rural areas and low-income and low-wealth areas in underdeveloped areas group.On the other hand,multiple policies should be taken to deal with a series of problems in order to promote the economic growth,which are excessive debt growth in the resident sector,excessive debt burden in some low-income households,regulating the private lending behavior,preventing financial risks,and cracking down on financial crimes.