The Housing Wealth Effect: The Crucial Roles of Demographics, Wealth Distribution and Wealth Shares

56 Pages Posted: 1 Jan 2012

See all articles by Charles W. Calomiris

Charles W. Calomiris

Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

Stanley D. Longhofer

Wichita State University - W. Frank Barton School of Business

William Miles

Wichita State University - W. Frank Barton School of Business

Date Written: December 27, 2011

Abstract

Current estimates of housing wealth effects vary widely. While some of this variation reflects data limitations and inappropriate estimators, we also consider the role of omitted variables suggested by economic theory that have been absent in a number of prior studies. In particular, our estimates of housing wealth effects take into account age composition and wealth distribution (using poverty rates as a proxy), as well as wealth shares (how much of total wealth is comprised of housing vs. stock wealth). We exploit cross-state variation in housing, stock wealth and other variables in a newly assembled panel data set and find that the impact of housing on consumer spending depends crucially on age composition, poverty rates, and the housing wealth share. In particular, young people who are more likely to be credit-constrained, and older homeowners, likely to be “trading down” on their housing stock, experience the largest housing wealth effects, as suggested by theory. Also, as suggested by theory, housing wealth effects are higher in state-years with higher housing wealth shares, and in state-years with higher poverty rates (likely reflecting the greater importance of credit constraints for those observations). Taking these various factors into account implies huge variation over time and across states in the size of housing wealth effects.  Finally, the fact that (contrary to theory) observed housing wealth effects are larger than stock wealth effects likely reflects the higher volatility of stock wealth and the relatively small proportion of the population that owns stock.   

Keywords: Housing wealth effect

JEL Classification: E21

Suggested Citation

Calomiris, Charles W. and Longhofer, Stanley D. and Miles, William, The Housing Wealth Effect: The Crucial Roles of Demographics, Wealth Distribution and Wealth Shares (December 27, 2011). Available at SSRN: https://ssrn.com/abstract=1977353 or http://dx.doi.org/10.2139/ssrn.1977353

Charles W. Calomiris

Columbia University - Columbia Business School ( email )

3022 Broadway
601 Uris, Dept. of Finance & Economics
New York, NY 10027
United States
212-854-8748 (Phone)
212-316-9219 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Stanley D. Longhofer (Contact Author)

Wichita State University - W. Frank Barton School of Business ( email )

1845 N. Fairmount
Wichita, KS 67260
United States
316-978-7120 (Phone)
316-978-3263 (Fax)

HOME PAGE: http://webs.wichita.edu/longhofer

William Miles

Wichita State University - W. Frank Barton School of Business ( email )

1845 N. Fairmount
Wichita, KS 67260
United States

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