China’s over 25% aggregate household saving rate is one of the highest in
the world. One popular view attributes the high saving rate to fast-rising housing prices in
China. However, cross-sectional data do not show a significant relationship between
housing prices and household saving rates. This article uses a simple consumption-saving
model to explain why rising housing prices per se cannot explain China’s high household
saving rate. Although borrowing constraints and demographic changes can translate
housing prices to the aggregate saving rate, quantitative simulations of our model using
Chinese time-series data on household income, housing prices, and demographics indicate
that rising mortgage costs can increase the aggregate saving rate by at most 2 to 4
percentage points in the best down-payment structure.