The Impact of House Demolition on Chinese Households’ Expenditures

Abstract

With the acceleration of urbanization in China, many Chinese households have experienced house demolition. Using panel data from the China Household Finance Survey of 2013-2017, this paper studies the impact of house demolition (HD) on household consumption in China, which is a shock to household income and wealth. Using difference-in-difference analysis, this paper finds house demolition has a significant positive influence on household consumption. House demolition increases various household expenditures, especially on energy, transportation, durables and vehicles. The Chinese government encouraged monetized compensation for demolition between 2015 to 2017, which continued to increase household consumption, but to a lesser extent. The responses of households differed across survey cohorts, suggesting that the impacts from house demolition varied over time. House demolition has a positive impact on household expenditure on health care in the first two years, but the impact turns negative two years later. House demolition does not show a significant positive impact on household education expenditure. These results suggest that the shock of house demolition can benefit households by increasing their consumption of goods with high demand elasticity but have no significant positive impact on household human capital investment.