The Effect of House Prices on Household Consumption in Italy
EMLYON Business School; Center for Research on Pensions and Welfare Policies (CeRP); Collegio Carlo Alberto
University of Turin (Italy) - Department of Economics and Statistics; Center for Research on Pensions and Welfare Policies (CeRP); Netspar
University of Rome II - Faculty of Economics
July 30, 2009
Journal of Real Estate Finance and Economics, Vol. 39, No. 3, 2009
This paper studies the effect of a change in real estate wealth on the consumption behaviour of Italian households, using the Bank of Italy's Survey of Household Income and Wealth dataset. We relate annual household consumption to capital gains in housing, controlling for characteristics such as age. In line with the empirical predictions of our model, we find the oldest households - which are less affected by the higher costs of future rent - to be the most affected by increases in real net housing wealth. Younger households, on the other hand, are not significantly affected in their consumption decisions by house price increases. We also take into account the fact that benefiting from capital gains is conditional on owning housing wealth and estimate the different impacts of house price changes on the savings behaviours of both homeowners and renters. Our estimates suggest that house price increases raise consumption not only for homeowners but also for renters.
Keywords: housing wealth, marginal propensity of consumption on wealth
JEL Classification: D11, D12Accepted Paper Series
Date posted: August 3, 2009 ; Last revised: July 14, 2011
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