The Effect of House Prices on Household Consumption in Italy

Posted: 3 Aug 2009 Last revised: 14 Jul 2011

See all articles by Riccardo Calcagno

Riccardo Calcagno

EMLYON Business School

Elsa Fornero

University of Turin (Italy) - Department of Economics and Statistics; Center for Research on Pensions and Welfare Policies (CeRP); Netspar

Mariacristina Rossi

University of Turin, Esomas

Date Written: July 30, 2009

Abstract

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, D12

Suggested Citation

Calcagno, Riccardo and Fornero, Elsa and Rossi, Mariacristina, The Effect of House Prices on Household Consumption in Italy (July 30, 2009). Journal of Real Estate Finance and Economics, Vol. 39, No. 3, 2009. Available at SSRN: https://ssrn.com/abstract=1441366

Riccardo Calcagno (Contact Author)

EMLYON Business School ( email )

23 Avenue Guy de Collongue
Ecully, 69132
France
+33(0)4 78337739 (Phone)

HOME PAGE: http://sites.google.com/site/rcalcagnopersonalwebpage/

Elsa Fornero

University of Turin (Italy) - Department of Economics and Statistics ( email )

Via Po, 53
Torino, 10124
Italy
+39-011-6706076 (Phone)

Center for Research on Pensions and Welfare Policies (CeRP)

Via Real Collegio, 30
Moncalieri, Turin
Italy

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Mariacristina Rossi

University of Turin, Esomas ( email )

Corso Unione Sovietica
Torino, Torino 10100
Italy

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