Home Values and Firm Behaviour
Saleem Bahaj (),
Angus Foulis () and
No 1724, Discussion Papers from Centre for Macroeconomics (CFM)
The homes of those in charge of firms are an important source of finance for ongoing businesses. We use firm level accounting data, transaction level house price data and loan level residential mortgage data from the UK to show that a £1 increase in the value of the residential real estate of a firm’s directors increases the firm’s investment and wage bill by £0.03 each. These effects run through smaller firms and are similar in booms and busts. In aggregate, the homes of firm directors are worth 80% of GDP. Using this, a back of the envelope calculation suggests that a 1% increase in real estate prices leads, through this channel, to up to a 0.28% rise in business investment and a 0.08% rise in total wages paid. We complement this with evidence on how a firm responds to changes in the value of its own corporate real estate; we find that, in aggregate, the residential real estate of directors is at least as important for activity. We use an estimated general equilibrium model to quantify the importance of both types of real estate for the propagation of shocks to the macroeconomy.
JEL-codes: D22 E32 R30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-mac and nep-ure
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Working Paper: Home values and firm behaviour (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:cfm:wpaper:1724
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