THE EFFECT OF HOME AND RENT PRICES ON PRIVATE

Kahan Michael () and Sigal Ribon
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Kahan Michael: Bank of Israel

Israel Economic Review, 2014, vol. 11, issue 1, 97-143

Abstract: Abstract: This work uses data from the Israeli Household Expenditure Survey for 2003–2011 to assess the effect of changes in home and rent prices on households’ private consumption expenditure. We find that an increase in home prices acts to increase owners’ consumption, particularly in the intermediate age groups—between 35 and 55—while the effects of home prices on consumption by younger or older households is not significant. The analysis shows that the development of regional prices, which better reflect the value of household property than the general average price, is what affects private consumption. The effect is of a magnitude of 0.18—higher than estimates obtained in studies for other countries. The effect of the substantial home price increases since 2008 on private consumption was stronger than those of the prolonged price decline in the ten years ending in 2007. The rapid increase in home prices between 2009 and 2011, and particularly in 2010, contributed more than 1 percentage point to private consumption expenditure in each of these years (according to the Expenditure Survey) as against a smaller contribution in the preceding years. The increase in rent contributed to a decline in consumption by apartment tenants, contrasted with an increase in consumption by landlords. Overall, the housing market abetted the growth of private consumption during these years.

Date: 2014
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