Mandatory Savings, Favorable Loans and Housing Inequality : A Quantitative Evaluation on Housing Provident Fund in China

The Housing Provident Fund (HPF), a mandatory saving scheme providing dis- counted mortgages, is a prevailing self-funded housing finance program in several emerging countries. China, in particular, established the Housing Provident Fund to promote homeownership, especially for the low income. However, after more than two decades of implementation, the program is bogged down with criticism like contributing to the growing housing bubbles, raising concerns about its impact on housing inequality. To examine HPF’s distributional effect on housing holding, we first find em- pirical evidence that HPF participation does lift housing wealth, with the poor benefiting more than the rich, through quantile regression models. Next, we char- acterize a life cycle model to evaluate HPF and analyze the general equilibrium effect. Our findings acknowledge HPF’s role in bringing more housing wealth for its participants, especially for the poor, but also warn of the aggregate side effect of pushing up house prices as HPF overage rate rises, which is likely to hinder the poor, especially the young households from housing market participation