Uncertainty, Household Housing Assets, and Portfolio Allocation

This study complements the literature by examining the role of housing in the allocation and performance of household portfolios under uncertainty. Based on comprehensive survey data in urban China, we identify both income uncertainty associated with unemployment and expenditure uncertainty associated with medical care spending. Exploring housing purchase and asset allocation decision of households under uncertainty, we find that: 1) compared with financial assets, housing asset is used as a primary hedging instrument against uncertainty; 2) households with new housing purchase under uncertainty will dissave and raise the tendency to invest in risky assets; 3) this effect is majorly driven by households outweighing portfolio liquidity over portfolio return when increasing the holding of illiquid housing assets. In general, the complementary between housing and financial assets under uncertainty makes households financially worse-off, especially for liquidity-constrained ones