This paper extends previous studies by exploring the precautionary
function of housing asset to hedge the uncertainty of both earning income and future
expenditure in a transitional economy. Based on a large official survey data of Chinese
urban residents over 2002-2009, we establish empirical models to separately estimate how
housing asset can smooth the impacts of two different uncertainties on household
consumption. We find that the volatility risk of both income and expenditure does have a
negative impact on household consumption. However, the empirical results also suggests
that housing asset is an important channel for households to hedge against this risk,
especially for families sensitive to the uncertainty risk of education and medical
expenditures. Our findings exhibit the necessity of improving the unemployment
insurance, educational and medical insurance system in post-reform urban China.