House Price Shocks, Negative Equity and Household Consumption in the UK in the 1990s

Richard Disney, Andrew Henley and David Jevons
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Richard Disney: University of Nottingham
David Jevons: University of Wales Aberystwyth

No 64, Royal Economic Society Annual Conference 2002 from Royal Economic Society

Abstract: We examine the impact of housing capital gains on savings behaviour during the 1990s British housing market cycle using microdata from the British Household Panel Survey and county-level house price data. We condition the models on household real financial capital gains using Family Resources Survey data. We find a marginal propensity to consume out of housing wealth of between 0.01 and 0.03, depending on specification. Among our novel findings are asymmetric behaviour between periods of house price rises and falls, with stronger consumption response during periods of house price increases, and a disproportionate impact on saving if the household has negative housing equity.

Date: 2002-08-29
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