Feeling Rich, Feeling Poor: Housing Wealth Effects and Consumption in Europe

Serhan Cevik and Sadhna Naik ()
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Sadhna Naik: International Monetary Fund

Annals of Economics and Finance, 2025, vol. 26, issue 1, 361-375

Abstract: Households across Europe are struggling with a double crisis — the worst inflation shock since the World War II and a sudden correction in house prices. There is a rich literature on how housing price cycles affect consumer spending, finding mixed results with a wide range of consumption responses to changes in housing wealth. In this paper, using quarterly data on 20 countries in Europe over the period 1980-2023, we analyze the dynamic relationship between inflation-adjusted house prices, disposable income and consumer spending and obtain statistically significant and economically intuitive results. Household consumption responds positively and swiftly to changes in real house prices and gross disposable income as expected. Quantitatively, we find that private consumption falls by 0.13 percentage points on average for one percent decrease in real house prices and 0.02 percentage points for a one percent decrease in real gross disposable income in the first quarter after the shock, plateauing after six and four quarters, respectively.

Keywords: House prices; Wealth effects; Consumer spending; Europe (search for similar items in EconPapers)
JEL-codes: C33 D12 D14 E21 E32 E44 E60 G15 R21 R30 (search for similar items in EconPapers)
Date: 2025
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Working Paper: Feeling Rich, Feeling Poor: Housing Wealth Effects and Consumption in Europe (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2025:v:26:i:1:ceviknaik

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