Who Marries Whom in a Surging Housing Market

This paper investigates the impact of a surging housing market on marital sorting. To cover the increasingly large down payments required in China today, both spouses’ parents have to hand over their resources to support the couple in purchasing a new home. The incentive to extend credit to make a down payment motivates individuals to “marry up,” and, therefore, predicts an equilibrium of positive assortative matching by parental wealth. Our difference-in-differences analysis shows that the partial correlation of paternal schooling years between the spouses increases by 0.118 if the down payment doubles and by 0.258 as the price growth rate doubles. Despite increasing social stratification, we find that a prenuptial agreement involving a shared housing asset can alleviate marital sorting: the assortativeness weakened after China’s divorce laws were reformed to award the share of the asset proportionate to the share of the initial down payment (rather than awarding equal shares) upon divorce.