How Do House Prices Affect Consumption? Evidence from Micro Data
76 Pages Posted: 19 Sep 2005 Last revised: 9 Jul 2022
There are 2 versions of this paper
How Do House Prices Affect Consumption? Evidence from Micro Data
Date Written: August 2005
Abstract
Housing is a major component of wealth. Since house prices fluctuate considerably over time, it is important to understand how these fluctuations affect households' consumption decisions. Rising house prices may stimulate consumption by increasing households' perceived wealth, or by relaxing borrowing constraints. This paper investigates the response of household consumption to house prices using UK micro data. We estimate the largest effect of house prices on consumption for older homeowners, and the smallest effect, insignificantly different from zero, for younger renters. This finding is consistent with heterogeneity in the wealth effect across these groups. In addition, we find that regional house prices affect regional consumption growth. Predictable changes in house prices are correlated with predictable changes in consumption, particularly for households that are more likely to be borrowing constrained, but this effect is driven by national rather than regional house prices and is important for renters as well as homeowners, suggesting that UK house prices are correlated with aggregate financial market conditions.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
How Do House Prices Affect Consumption? Evidence from Micro Data
By John Y. Campbell and Joao F. Cocco
-
House Prices, Consumption, and Monetary Policy: A Financial Accelerator Approach
By Kosuke Aoki, James Proudman, ...
-
Housing Market Spillovers: Evidence from an Estimated DSGE Model
By Stefano Neri and Matteo Iacoviello
-
Housing Market Spillovers: Evidence from an Estimated DSGE Model
By Matteo Iacoviello and Stefano Neri
-
Consumption, House Prices and Expectations
By Orazio Attanasio, Laura Blow, ...
-
Houses as Collateral: Has the Link between House Prices and Consumption in the U.K. Changed?
By Kosuke Aoki, James Proudman, ...
-
Determinants of House Prices in Nine Asia-Pacific Economies
By Eloisa T. Glindro, Tientip Subhanij, ...
-
Housing Wealth and Consumption Growth: Evidence from a Large Panel of Households
By Jie Gan
-
Consumption Excess Sensitivity, Liquidity Constraints and the Collateral Role of Housing
By Andrew Benito and Haroon Mumtaz