The Housing Wealth Effect: Quasi-Experimental Evidence

Roine Vestman, Jesper Bojeryd, Björn Tyrefors and Dany Kessel

No 18034, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Empirical studies have estimated a big range of consumption response sizes to changes in house prices. Using a quasi-experiment, we estimate a shock of -19.4 percent to house prices in the area surrounding an airport in Stockholm after its operations were unexpectedly continued as a result of political bargaining behind closed doors. This source of price divergence is ideal for identifying housing wealth effects since it is local and unrelated to variations in macroeconomic conditions. Using a household data set with information on the location of primary residence relative to the airport, we find a short-run elasticity with respect to new car purchases of 0.39, corresponding to a one-year marginal propensity for car expenditures of 0.12 cents per dollar lost in housing wealth. Households with high loan-to-value ratios and little bank deposits respond the most. A quantitative model is consistent with the empirical findings and pinpoints important determinants of the response size, which may explain the variation in previous estimates.

Keywords: Consumption; House prices; Marginal propensity to consume; Housing wealth; Collateral effect; House price elasticity (search for similar items in EconPapers)
JEL-codes: D12 E21 E32 E44 E60 (search for similar items in EconPapers)
Date: 2023-03
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Related works:
Working Paper: The Housing Wealth Effect: Quasi-Experimental Evidence (2019)
Working Paper: The Housing Wealth Effect: Quasi-Experimental Evidence (2019)
Working Paper: The Housing Wealth Effect: Quasi-Experimental Evidence (2018)
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