House Prices and Consumption Inequality

Etheridge, Ben

doi:10.1111/iere.12404

Cited by 10 publications

(3 citation statements)

References 70 publications

(136 reference statements)

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“…Our results on the impact of house price changes have further implications for the literature on consumption pass-through (which follows Blundell, Pistaferri, and Preston (2008)). That literature focuses largely on the pass-through of income shocks to non-durable consumption, but the realisations of house prices also matter, as noted by Etheridge (2019). We show that the extent of the pass-through from house price realisations will depend on the leveraged position of households, and also that it is important to distinguish between a consumption response and an investment spending response.…”

Section: Resultsmentioning

confidence: 72%

House Price Rises and Borrowing to Invest

Crossley¹,

Levell²,

Low³

2020

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Household borrowing and spending rise with house prices, particularly for leveraged households, but household spending is not consumption. We propose an alternative borrow-to-invest channel by which house price gains affect household spending on residential investment. We show that rational, leveraged households have an incentive to make additional residential investments when house prices rise. Our empirical application compares responses in different kinds of spending across more and less leveraged households. We find strong evidence of the borrow-to-invest channel in UK data. Credit constraints matter through reducing access to leveraged returns and so reducing lifetime resources, rather than through consumption smoothing.

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Section: Resultsmentioning

confidence: 72%

House Price Rises and Borrowing to Invest

Crossley¹,

Levell²,

Low³

2020

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“…That literature focuses largely on the pass-through of income shocks to non-durable consumption, but the realisations of house prices also matter, as noted by Etheridge (2019).…”

Section: Discussionmentioning

confidence: 99%

House price rises and borrowing to invest

Crossley,

Levell,

Low

2024

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Household borrowing and spending rise with house prices, particularly for leveraged households, but household spending is not consumption. We propose a borrow-to-invest motive by which house price gains affect household spending on residential investment: rational, leveraged households have an incentive to make additional residential investments when house prices rise. Credit constraints then matter through reducing access to leveraged returns and so reducing lifetime resources, rather than through consumption smoothing. We test this motive by comparing responses in different categories of spending across more and less leveraged households. We find strong evidence of the borrow-to-invest motive in UK data.

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“…The income elasticity of house prices affects housing affordability, and spatial differences in elasticity influence regional growth: the larger the long-term elasticity of prices with respect to income, the greater the counterforce posed by rising house prices on regional growth. Moreover, the relationship between house prices and income is expected to influence household consumption levels, consumption inequality, savings, and perceived financial well-being (Cooper, 2013;Berger et al, 2018;Etheridge, 2019;Atalay and Edwards, 2022). If regional house prices and incomes have stable long-term relationships, then deviations of prices from this relationship can be used to assess whether prices are under or over their long-term equilibrium levels.…”

Section: Introductionmentioning

confidence: 99%