Does urban renewal boost consumption? Evidence from demolition-based redevelopment in China

This study investigates spillover effects demolition-based redevelopment influences household consumption, a crucial but underexplored consequence of urban renewal. Using household-level data from the China Family Panel Studies (CFPS) matched with regional data from the China Statistical Yearbook, we leverage housing demolition as an exogenous shock to examine the impact of demolition-based redevelopment on household consumption. We use a difference-in-differences (DiD) methodology by comparing household consumption in communities where homes were demolished with those in undemolished communities. Our findings reveal that urban renewal significantly stimulates household consumption by increasing housing wealth (wealth effect) and expanding job opportunities (employment effect). The positive consumption effect is more pronounced for enjoyment-related consumption than for survival or developmental consumption and is stronger in urban than in rural areas. Further analyses show that the consumption-enhancing effect is concentrated in the housing market expansion period, whereas it becomes substantially weaker during the subsequent housing market downturn. Moreover, residential mobility analysis suggests heterogeneous consumption responses between households moving into and moving out of urban-renewal communities. These findings provide new evidence on the broader consumption spillover effects of demolition-based redevelopment beyond directly affected households.