Monday, August 5, 2019

Urban China: Tenure change from renter to owner significantly increased subjective well-being; the effect was unaffected by the financial burdens of new homeowners

Does happiness dwell in an owner-occupied house? Homeownership and subjective well-being in urban China. Xian Zheng, Zi-qing Yuan, XiaolingZhang. Cities, Volume 96, January 2020, 102404. https://doi.org/10.1016/j.cities.2019.102404

Highlights
• We investigated the causal effect of homeownership on subjective well-being.
• The causal relationship was estimated using the difference-in-differences approach.
• Tenure change from renter to owner significantly increased subjective well-being.
• The causal effect was unaffected by the financial burdens of new homeowners.

Abstract: This study investigates the causal relationship between homeownership and subjective well-being based on household-level panel data collected from the China Household Finance Survey (CHFS) in 2011 and 2013. The extent to which homeownership contributes to the changes in subjective well-being is estimated, focusing on the heterogeneous effects across socioeconomic and demographic groups. Evidence from the identification strategies indicates that homeownership has a positive impact on subjective well-being. Moreover, the results are robust to different specifications and unaffected by the financial constraints faced by new homeowners. Our findings have useful implications for policymakers to stimulate homeownership rates to promote subjective well-being.

Keywords: Subjective well-beingHomeownershipDifference-in-DifferencesUrban China

1. Introduction

The analysis of well-being is the cornerstone of neoclassical welfare
economics, with abundant empirical literature concerning the determinants
of self-reported happiness, life satisfaction, or subjective
well-being (SWB) (Dolan, Peasgood, & White, 2008).1 As a representative
and multidimensional indicator of individual utility or
welfare, SWB is determined by the fundamental aspects of life from a
macroscopic perspective (Benjamin, Heffetz, Kimball, & Szembrot,
2014).
Housing satisfaction is one of the most decisive domains accounting
for life cycle satisfaction (Van Praag, Frijters, & Ferrer-i-Carbonell,
2003); in the words of John Howard Payne (1781–1852), “Be it ever so
humble, there is no place like home”. Intuitively, homeownership exerts
an indirect influence on overall life satisfaction through housing
satisfaction. Previous studies mainly investigate the determinants of
housing satisfaction, including housing tenure, hedonic characteristics,
individual and household attributes, neighborhood conditions, and
social interactions. In particular, homeownership has gained increasing
attention due to its potential implications for both individuals and societies.
An extensive literature provides empirical evidence supporting
a positive relationship between homeownership and SWB (Diaz-
Serrano, 2009; Dietz & Haurin, 2003; Guven & Sørensen, 2012; Ruprah,
2010; Stillman & Liang, 2010; Zumbro, 2014), whereas other studies
report a contradictory negative or insignificant relationship
(Bucchianeri, 2011; Elsinga & Hoekstra, 2005a; Parker, Watson, &
Webb, 2011).
Theoretical disputes and welfare concerns motivate our investigation
of the relationship between homeownership and SWB. For decades,
it was taken for granted that homeownership is related to welfare improvement
due to its private and social benefits. However, homeownership
is assumed to decrease SWB when the heavy financial
burden of mortgages, constraints on mobility, and uncertainty of
housing prices are considered. Many question whether homeownership
can ultimately increase SWB in consideration of housing affordability.
Therefore, it is necessary to evaluate the impact of homeownership on
SWB in consideration of both benefits and potential drawbacks.
In light of this debate, we evaluate whether homeownership increases,
decreases, or has no effect on SWB. An increased understanding
of the relationship between homeownership and SWB will be beneficial
for policymakers to develop sustainable housing policies. Furthermore,
discovering the factors through which homeownership affects SWB is
crucial. In this way, policymakers can advance policies and take initiatives
to facilitate SWB according to an appropriate micro-mechanism.
Consequently, the relationship between homeownership and
SWB is an important issue in need of further research.
China's housing market provides an appealing testing ground for
analyzing the homeownership-happiness puzzle for several reasons. On
the one hand, from the standpoint of housing systems, China is usually
considered as a home-owning society rather than a cost-rental society.
In such a setting, renting is not regarded as a good alternative to
homeownership. Renting usually involves residential uncertainty or
instability of individual life conditions. In particular, renters are unable
to fulfill widely-accepted family values and practices (Elsinga &
Hoekstra, 2005b). By contrast, the homeowners reap the benefits of
social identity in marriage markets and other aspects. Accordingly, an
enthusiastic preference for homeownership has been deeply rooted in
Chinese tradition since ancient times. On the other hand, market-oriented
reform of the welfare housing system in 1998 dramatically
fueled the willingness of households to gain privatized homeownership
and increased the homeownership rate (Chen & Wen, 2017). Additionally,
China's housing market is substantially influenced by local
governments' profit-oriented land financing activities. Along with a
series of socioeconomic reforms and acceleration in urbanization,
housing prices have been soaring in recent years, especially in first-tier
cities. Given the high housing prices and price-to-rent ratios, unaffordability
poses one of the biggest challenge in the so-called superstar
cities (Chen, Hu, & Lin, 2019; Gyourko, Mayer, & Sinai, 2013). The
literature concerning the homeownership-happiness puzzle in China
continues to grow, and some studies question whether the overwhelming
financial burden can offset the positive effects of homeownership
(J. Chen & Deng, 2014; R. Chen, 2010; Cheng, King, Smyth,
& Wang, 2016; Cheng & Smyth, 2015a; Hu, 2013).
The remainder of this paper is structured as follows. Section 2
presents a literature review. Section 3 provides a theoretical framework
regarding the relationship between homeownership and SWB. The data
sources and descriptive statistical analysis used are presented in Section
4, followed by the empirical strategy in Section 5. Section 6 reports the
empirical results and robustness checks, while Section 7 summarizes
and concludes the paper.

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