The Effect of Home and Rental prices on Private Consumption in Israel – A Micro Data Analysis

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

No 2013.06, Bank of Israel Working Papers from Bank of Israel

Abstract: This work uses data from the Israeli family expenditure survey for the years 2003 to 2011 to assess the effect of changes in home and rental prices on households’ private consumption expenses. We find that an increase in home prices acts to increase owners’ consumption, particularly for 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 the household’s property than the general average price, is what affects private consumption. The effect is of an order of size of 0.18—higher than estimates obtained in studies for other countries. We find that the strength of the effects of the substantial home price increases since 2008 on private consumption was stronger than that of the prolonged price decline in the ten years to 2007. The rapid increase in home prices between 2009 and 2011, and particularly in 2010, contributed more than one percentage point to private consumption expenditure in each of these years (according to the expenditure survey), compared to a smaller contribution in the preceding years. The increase in rental prices contributed to a decline in consumption by apartment tenants, contrasted with an increase in consumption by apartment landlords. In total, the housing market contributed to the expansion of private consumption during these years.

Pages: 45 pages
Date: 2013-05
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https://boiwebrepec.azurefd.net/RePEc/boi/wpaper/WP_2013.06.pdf First version, 2013 (application/pdf)

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