Housing-Consumption Channel of Mortgage Demand

Gabriel Ahlfeldt, Nikodem Szumilo and Jagdish Tripathy

No 19370, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We quantify the housing-consumption channel in mortgage demand according to which households borrow more following house-price increases since housing and non-housing consumption are imperfect substitutes. To identify this channel, we take a structural approach to mortgage demand and supply, exploiting exogenous variation in house-price growth and a unique dataset with matched transaction-price and mortgage information. We estimate an elasticity of mortgage borrowing to house-prices of 0.82. Counterfactual analysis of the general-equilibrium of housing and mortgage markets shows that, sans housing-consumption channel, mortgage and house-price growth in the UK would have been 50% and 31% lower, respectively, since the 1990s.

Keywords: House; prices (search for similar items in EconPapers)
JEL-codes: G11 G21 R21 (search for similar items in EconPapers)
Date: 2024-08
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