China & World Economy / 106–135, Vol. 30, No. 1, 2022

The Consumption-Stimulating Effect of Public Rental Housing in China

Xiaokuai Shao, Yujin Cao, Yangchuan Teng, Jidong Chen, Liutang Gong

Abstract

China’s public rental policy creates opportunities for poor households to rent apartments at low rental prices. In addition to such an impact, we argue that public rental housing increases the purchasing power of the poor and therefore enhances the income elasticity of consumption, i.e., the percentage of consumption increment due to a 1 percent increase in income. Based on a nationwide dataset from China, the Chinese Household Income Project 2018, we find that public rental housing significantly increases the marginal impact of household disposable income on consumption. Specifically, our analysis suggests that public rental apartments could increase the income elasticity of consumption demand by 18 percent among all rental households and by 24 percent among rental households with below-average income. We also find that the effect of public rental housing on income elasticity of consumption is stronger for service consumption than for nonservice consumption. These results suggest that a well designed public rental policy could not only promote consumption in favor of the service industry but also alleviate the undesirable consequences of the unbalanced consumption structure caused by income inequality.