Sitting on a Gold Mine: Do People Spend More When Home Prices Rise?
CUHK research finds that housing price appreciation leads to higher online consumption, less payment hesitation, less order returns and more online shopping activity during work hours
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In China, property (as an asset class) is king. Its dominance is fuelled by a long and unprecedented boom in the housing market in recent decades which has been instrumental in driving the country’s spectacular rise in wealth. For many Chinese, owning a home is not so much a status symbol as it is a basic requirement, with ownership rates among the world’s highest at around 90 percent. The combination of these historical and demographic factors provided the perfect backdrop for a group of researchers to look at how a rise in housing wealth could lead to changes in consumer behaviour.
The working paper “Housing Wealth and Online Consumer Behaviour” — which was jointly written by Yang Yang, Assistant Professor of Real Estate at The Chinese University of Hong Kong (CUHK) Business School, Prof. Fang Hanming at the University of Pennsylvania and Prof. Wang Long at ShanghaiTech University — confirms what many people may already suspect: when housing prices go up, people become more impulsive in their spending and less motivated at work.
To come to their conclusion, the researchers looked at the surge in property prices in 2017 that followed the surprise announcement of the establishment of the Xiong’an New Area in China’s Hebei province and its impact on the online buying habits of the residents of this area. Located about 100 kilometres from Beijing, Xiong’an is one of the many “new areas” in China. These are former farmlands turned into urban districts where local governments are granted special economic privileges to help it attract development and speed up growth. The Central government has envisioned Xiong’an to be the next Shanghai Pudong New Area or the Shenzhen Special Economic Zone, two of the major drivers of China’s GDP growth.
According to the study, the average property listing and rental prices in Xiong’an went up by over 60 percent and 78 percent respectively, following the government announcement on 1 April 2017. The average housing price also increased significantly in neighbouring counties, although on a smaller scale. Savvy property speculators flooded the streets of Xiong’an within hours after the announcement, The New York Times reported.
“Chinese people have a love affair with purchasing property,” says Prof. Yang, noting that about 70 percent of the country’s household wealth is tied to property whereas this figure was only around 30 percent in the US. “When the news of Xiong’an first broke, local residents were overjoyed to find themselves sitting on gold mines as their property value skyrocketed overnight,” she adds. “We wanted to find out how these people reacted to this sudden infusion of wealth.”