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

57 Pages Posted: 14 Jan 2012 Last revised: 23 Jun 2022

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 - Department of Economics

Date Written: January 2012

Abstract

Current estimates of housing wealth effects vary widely. We consider the role of omitted variables suggested by economic theory that have been absent in a number of prior studies. Our estimates 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.

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 (January 2012). NBER Working Paper No. w17740, Available at SSRN: https://ssrn.com/abstract=1985073

Charles W. Calomiris (Contact Author)

Columbia University - Columbia Business School ( email )

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National Bureau of Economic Research (NBER)

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Stanley D. Longhofer

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

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Wichita, KS 67260
United States
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316-978-3263 (Fax)

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

William Miles

Wichita State University - Department of Economics ( email )

Wichita, KS 67260-0078
United States

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