Housing and Saving with Finance Imperfection

Yanbin Chen, Fangxing Li and Zhesheng Qiu
Additional contact information
Yanbin Chen: School of Economics, Renmin University of China
Fangxing Li: School of Economics, Renmin University of China

Annals of Economics and Finance, 2013, vol. 14, issue 1, 207-248

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 difficult 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.

Keywords: Housing; Saving; Down payment; Home Equity Withdrawal (search for similar items in EconPapers)
JEL-codes: C16 D14 E21 R21 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://down.aefweb.net/AefArticles/aef140110Chen.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2013:v:14:i:1:chen:li:qiu

Access Statistics for this article

Annals of Economics and Finance is currently edited by Heng-fu Zou

More articles in Annals of Economics and Finance from Society for AEF Contact information at EDIRC.
Bibliographic data for series maintained by Qiang Gao ().