Summary:
Health is a vital indicator of both individual well-being and social welfare. With the public medical insurance fund approaching a state of "tight balance", understanding how house price fluctuations shape residents' capacity and willingness to invest in health has become an important pathway for enhancing residents' health and achieving sustainability of the public medical insurance system. Studies by Fichera and Gathergood (2016), Gupta et al. (2018), and Kopytov et al. (2021), which are based on data from the UK or the US, have found that rising house prices enhance the health of homeowners. Conversely, Xu and Wang (2022), using Chinese data, have discovered that such increases negatively affect the health of individuals under the age of 60. Through both empirical and quantitative-theoretic analyses, we investigate the short-term and long-term effects of house price changes on Chinese residents' health and explore the underlying mechanisms. Utilizing data from the China Family Panel Studies spanning between 2012 and 2018, we firstly conduct an empirical analysis to determine if house price changes have short-term impacts on residents' health. We split our sample by age and homeownership, and show that rising house prices significantly improve the health of the elderly homeowners but negatively affect the health of the young without housing assets. We further empirically test the mechanisms behind the above result. Specifically, rising house prices and rental rates alter residents' ability and willingness to pay for health investments. In terms of the ability to pay, increasing house prices and rental rates elevate the wealth of homeowners and loosen their borrowing constraints, thereby enhancing residents' financing capabilities. Regarding the willingness to pay, increasing house prices and rental rates lower the relative price of health investments, thereby encouraging residents to allocate their wealth towards health investments via a substitution effect. While the limited time span of our datasets allows us to study only the short-run effects of house price changes, as due to well-recognized costs it takes a long time for households to adjust their homeownership, we calibrate a life-cycle model with endogenous housing and health choices using Chinese household data and investigate the long-run effects of house price growth rate and volatility on residents' health. The growth rate of housing prices simultaneously alters residents' ability and willingness to invest in health. On one hand, as the growth rate of housing prices increases, it increases the overall wealth of residents and thus enhances their ability to pay. On the other hand, it also raises the opportunity cost of health investments, leading to a decrease in residents' willingness to pay. Quantifying these two opposing forces using our calibrated model indicates that the overall impact of house price growth rates on health investments exhibits nonlinearity, that is, an excessively rapid growth predominantly reduces residents' willingness to pay for health investments, while an excessively slow growth predominantly lowers their ability to pay. House price volatility primarily affects residents' willingness to pay for health. When house price volatility decreases, on one hand, housing investment becomes more attractive and this increases the opportunity cost of health investments and reduces residents' willingness to pay. On the other hand, residents' precautionary motivation to save also gets reduced, which conversely increases their willingness to pay for health. Quantitative results show that the former effect dominates. The paper makes three contributions. First, this paper is the first to employ a life-cycle model that incorporates both housing and health to address policy issues in China. This model, calibrated using Chinese data, integrates health and financial decisions into a unified framework. It enables quantitative evaluation of the interactions between various types of residents' decisions and can be applied to a broader set of topics in this class. Second, this paper is the first to quantitatively analyze the long-term impact of house price dynamics on residents' health. Specifically, it highlights the endogenous long-term adjustments in residents' asset allocation, which subsequently interacts with their health decisions in a rich manner. Our finding shows the importance of understanding the relationship between residents' asset allocation and health behaviors under different economic environments. Third, while previous empirical studies have mainly focused on the impact of housing prices on the health of a restricted group of households, we provide a comprehensive analysis of the short-term impact of housing prices on the health of residents with different demographic characteristics. We not only analyze how house prices alter the distribution of residents' health, but also empirically test the mechanism behind, i.e., both their ability and willingness to pay for health.
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