Housing Wealth Effects: Cross‐sectional Evidence from New Vehicle Registrations

Abstract

We investigate the relationship between housing wealth and consumption using postcode‐level variation in house prices and administrative data on new passenger vehicle registrations as a proxy for consumption. We find a robust cross‐sectional relationship, and in our preferred specification estimate an elasticity of new passenger vehicle registrations with respect to gross housing wealth of 0.4–0.5, which based on our preferred calibration implies a marginal propensity to consume for total consumption of less than 0.5 cents. Notably, we find evidence that the relationship between house prices and new vehicle registrations is heterogeneous in income.

Wealth and Consumption in Australia

“…This elasticity is consistent with the evidence presented in Gillitzer and Wang (2016), who report an elasticity of motor vehicle registrations with respect to housing prices of 0.5 per cent, although their estimate for total consumption is smaller than ours.…”

“…The literature examining the relationship between consumption and wealth, both in Australia and abroad, is large. Prominent Australian studies include Tan and Voss (2003) and Dvornak and Kohler (2007), who estimate the relationship between consumption and wealth using time‐series methods and national and state level data, and Windsor, Jääskelä and Finlay (2015) and Gillitzer and Wang (2016), who use more granular data. These Australian studies mirror the approaches used in the international literature, with Poterba (2000) and Case, Quigley and Schiller (2005, 2013) being leading examples of studies using aggregate data, and Mian, Rao and Sufi (2013) and Paiella and Pistaferri (2017) being examples of papers that adopt a more microeconomic approach.…”

Housing and Commodity Investment Booms in a Small Open Economy

“…Including the housing stock in the utility function also generates a positive correlation between real housing wealth (measured by the housing stock) and consumption. This is qualitatively similar to the housing wealth effects documented empirically in Australia by Dvornak and Kohler (2007), Gillitzer and Wang (2016), and May, Nodari, and Rees (2020), and to the effect of housing collateral constraints when housing debt is considered as in the models of Iacoviello (2005) and Iacoviello and Neri (2010).…”

An Approach for Housing Wealth Estimation: The Mexican Case

“…Despite this indicator's usefulness, there is not a standard methodology to estimate housing wealth since statistics on this sector differ by country; and, more importantly, are usually scant. In fact, literature often approximates said measure with the evolution of housing price indices (see Alp andSeven, 2019; Gillitzer andWan, 2016), thus leaving aside the effects of changes in housing stock over time.…”