A Dynamic Simulation Model of Chinese Resident's Housing Consumption and Investment Behavior

We solve a dynamic realistically model to study the character of Chinese resident's optimal life-cycle housing consumption and investment behavior. We try to find the relationship between housing decisions and household asset allocation, and the effect of house price risk and down payment ratio. Our analysis generates a hump-shaped home ownership and housing position in age, and finds that a household may optimal choose to rent in the early of life-cycle, and sell his house or refinance a fraction of his house equity for supporting consumption other than housing at the latter stage of life-cycle. Our model also shows that investment in housing crowds out the consumption and stockholding because of illiquid home equity restrictions. The house price risk crowds out stockholding because of protective saving, while down payment ratio reduces it due to the illiquid home equity restrictions.