House Price Rises and Borrowing to Invest

Thomas Crossley (), Peter Levell and Hamish Low

No 17188, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Household borrowing and spending rise with house prices, particularly for leveraged households, but household spending is not consumption. We propose an alternative borrow-to-invest motive by which house price gains affect household spending on residential investment: rational, leveraged households have an incentive to make additional residential investments when house prices rise. We test this motive by comparing responses in different categories of spending across more and less leveraged households. We find strong evidence of the borrow-to-invest motive in UK data. Credit constraints matter through reducing access to leveraged returns and so reducing lifetime resources, rather than through consumption smoothing.

Keywords: House prices; Leverage; Consumption; Home investment (search for similar items in EconPapers)
JEL-codes: D14 D15 E21 G51 (search for similar items in EconPapers)
Date: 2022-04
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Related works:
Journal Article: House price rises and borrowing to invest (2024)
Working Paper: House price rises and borrowing to invest (2024)
Working Paper: House Price Rises and Borrowing to Invest (2020)
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