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Journal of Happiness Studies

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05-12-2016 | Research Paper

The Impact of Home Ownership on Life Satisfaction in Urban China: A Propensity Score Matching Analysis

Authors: Honghao Ren, Henk Folmer, Arno J. Van der Vlist

Published in: Journal of Happiness Studies | Issue 2/2018

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Abstract

China has implemented a series of socioeconomic reforms since 1978. One of the reforms allows urban residents to purchase their own houses rather than renting houses from state institutions which has resulted in a rapid increase in home ownership. This paper estimates the impact of home ownership on life satisfaction in urban China on the basis of the 2010 wave of the China General Social Survey. Special attention is paid to the methodological problem of confoundedness between the determinants of home ownership and life satisfaction. Propensity score matching (PSM) is applied to control it. The results show that PSM reduces upward estimation bias caused by confoundedness and that it is more appropriate to control confoundedness than ordered probit regression. The estimates furthermore indicate that home ownership has a significant positive impact on life satisfaction of medium- and high income urban residents. For low income urban residents, the impact is also positive, though insignificant. The outcomes connect to the objectives of national development policy and thus have several important policy implications. First, the central and local governments, especially in provinces where it is still low, may want to continue stimulating home ownership as it enhances life satisfaction. Secondly, specific programs may be designed to make home ownership financially affordable for low income groups. Thirdly, local governments may want to initiate or intensify urban (renewal) programs to improve poor public facilities including public transportation, green space and sports accommodations in the immediate vicinity of depressing low income neighborhoods.

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The terms of subjective wellbeing, happiness and life satisfaction are used interchangeably in the literature (see Ferrer-i-Carbonell 2005; Haybron 2007; Lu 1999; Welsch 2006). This paper uses life satisfaction.

Real average housing prices increased by almost 137% after the urban housing reform, from 1854 RMB per square meter in 1998 to 4382 RMB in 2013 (China Statistical Yearbook 2014). As a consequence, most low income home owners in China face financial burdens and restrict their consumption of other goods.

Occasionally, interaction terms are used in logit or probit models of life satisfaction. This, however, is not the same as accounting for both the direct and indirect effects of the confounding determinants and estimating the impact of housing on life satisfaction with the indirect effects of the confounding factors “filtered out”. For applications of logit or probit analyses of life satisfaction for China, see Dietz and Haurin (2003), Hu (2013), Li et al. (2012) and Lin et al. (2012), Parker et al. (2011), Rossi and Weber (1996) and Zumbro (2014) for developed countries.

There is also a direct effect of education on life satisfaction, as explained in Sect. 2.2.

House ownership brings about financial benefits when housing prices increase but financial losses when they decrease. As housing prices were expected to increase in urban China in 2010 and beyond, this paper considers home ownership as a vehicle to build wealth rather than as a source of financial losses.

Note that a low income household may benefit from rising housing prices via wealth accumulation. This effect, however, does not reduce financial burdens related to e.g. mortgage.

This is in line with the fact that the home ownership rate among high income earners is generally insignificantly higher than among medium income earners (Fisher and Jaffe 2003).

From these references it follows that systematic omitted variables that affect both home ownership and life satisfaction lead to omitted variables bias. It also follows that variables that are not significant in the home ownership model need not be considered for matching. To reduce the above two risks, we thoroughly reviewed the literature on the determinants of home ownership and life satisfaction (see Sect. 2.2).

Different from urban areas, in rural areas there is no housing market and few houses are available for renting. In addition, there are few housing development companies in rural areas. Instead of purchasing houses in the housing market, rural residents are able to obtain land in their villages at low cost, and build their own houses. As a result, home ownership in rural areas is substantially higher than in urban areas (97.47 vs 74.24% in 2010) (The 2010 Population Census of China 2012).

t tests for the unmatched groups can be found in “Appendix”.

Note that this difference is before matching.

Note that low (Pseudo) R² s are common in cross section studies. More importantly, a low R² does not affect identification of significant determinants and the notion of ceteris paribus, if the zero conditional mean assumption holds (Wooldridge 2010).

We also estimated a model with marital status as an explanatory variable. Its coefficient was highly insignificant for all income groups. Therefore, it was not considered further.

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Title: The Impact of Home Ownership on Life Satisfaction in Urban China: A Propensity Score Matching Analysis
Authors: Honghao Ren
Henk Folmer
Arno J. Van der Vlist
Publication date: 05-12-2016
Publisher: Springer Netherlands
Published in: Journal of Happiness Studies / Issue 2/2018
Print ISSN: 1389-4978
Electronic ISSN: 1573-7780
DOI: https://doi.org/10.1007/s10902-016-9826-x

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