Housing Wealth Effects for Private and Subsidized Homeowners

This study examines the effect of housing wealth on household consumption when there are resale (including refinancing) constraints that prevent housing assets from being cashed out. Based on household-level expenditure data in Hong Kong, two resale constraints are found to have weakened the housing wealth effect. The first one applies to subsidized homeowners who are not allowed to resell their units before sharing their capital gain with the government. A significant housing wealth effect is found among private homeowners, but not subsidized homeowners. The second one applies to private homeowners whose recourse mortgages go “underwater” – they have to repay the outstanding loan to the bank before they can resell their units. In this case, the housing wealth effect becomes weaker even among private owners. The results remain robust after the application of more rigorous sample selection through propensity score matching