The Housing Wealth Effect: The Crucial Roles of Demographics, Wealth Distribution and Wealth Shares

Charles Calomiris, Stanley D. Longhofer and William Miles

Critical Finance Review, 2013, vol. 2, issue 1, 049-099

Abstract: Current estimates of housing wealth effects vary widely. We consider the role of omitted variables suggested by economic theory that have been absent in a number of prior studies. Our estimates take into account age composition and wealth distribution (using poverty rates as a proxy), as well as wealth shares (how much of total wealth is comprised of housing vs. stock wealth). We exploit cross-state variation in housing, stock wealth and other variables in a newly assembled panel data set and find that the impact of housing on consumer spending depends crucially on age composition, poverty rates, and the housing wealth share. In particular, states with more young people who are more likely to be credit-constrained, and older homeowners, likely to be "trading down" on their housing stock, experience the largest housing wealth effects, as suggested by theory. Also, as suggested by theory, housing wealth effects are higher in state-years with higher housing wealth shares, and in state-years with higher poverty rates (likely reflecting the greater importance of credit constraints for those observations). Overall, we estimate the average housing wealth effect to be approximately 8.1 cents per dollar. However, consistent with theory, demographic and wealth characteristics of the population cause this effect to vary widely across states and over time.

Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://dx.doi.org/10.1561/104.00000008 (application/xml)

Related works:
Working Paper: The Housing Wealth Effect: The Crucial Roles of Demographics, Wealth Distribution and Wealth Shares (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:now:jnlcfr:104.00000008

Access Statistics for this article

More articles in Critical Finance Review from now publishers
Bibliographic data for series maintained by Lucy Wiseman ().