The Impact of the Out-of-Pocket Housing Expense Inflation on Household Alcohol and Tobacco Purchases

Virat Agrawal, Richard K. Green, Neeraj Sood and Christopher M. Whaley

No 33534, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Housing expense inflation has historically averaged an annual growth rate of 3.0 percent. However, starting in early 2021 housing expense inflation surged, peaking at 8.2 percent by March 2023. Substance use also increased concurrently. This study investigates the impact of rising housing expenses on household purchases of alcohol and tobacco. The relationship is ambiguous: higher housing costs could reduce spending on these items due to constrained disposable income or increase them as a coping mechanism for financial stress. To identify the effects of housing expense inflation we utilize exogenous variation in county-level housing regulations and exposure to housing expense inflation, which affects renters and homeowners differently as homeowners with fixed-rate mortgages are less impacted. In particular, we employ a difference-in-difference-in-difference (DDD) approach, comparing changes in alcohol and tobacco purchases between renters and homeowners, before and after the housing expense surge, across counties with varying housing regulation levels. Our findings reveal that a 1-unit increase in our housing regulation index—equivalent to moving from the 10th to the 90th percentile—correlates with an additional $28.70 (about 15.6 percent) monthly increase in out-of-pocket housing expenses per household member for renters relative to homeowners between 2019 and 2022. This increase is also associated with a 26 to 38 percent rise in financial difficulties among renters compared to homeowners. Furthermore, the same regulatory increase corresponds to a 15.2 percent rise in monthly beer purchases per member among renters relative to homeowners in 2022 compared to 2019, driven largely by low-cost beer. However, we find no significant effect on monthly household purchases of liquor, wine, or cigarettes.

JEL-codes: D1 G5 I1 I12 I3 R28 (search for similar items in EconPapers)
Date: 2025-02
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