Do house prices matter for household consumption?
Lu Zhang ()
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Lu Zhang: CPB Netherlands Bureau for Economic Policy Analysis
CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis
To what extent do large drops in house prices drive household consumption? Using a large panel of Dutch households over the period 2007 to 2014, when house price dropped 27%, we find a significantly positive relationship between house prices and household (durable) consumption. A 10% change in home values leads to a 0.7% change in household consumption for homeowners, but a negligible response for renters. Young and middle-aged homeowners have larger consumption sensitivities to house prices than old households. Delving into the underlying channels, a pure wealth effect can explain part of the consumption sensitivity to house prices. Furthermore, we find strong evidence that house prices affect consumption through the borrowing collateral (and precautionary saving) channel.
JEL-codes: D12 D14 E21 (search for similar items in EconPapers)
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