The Housing Wealth Effect: Quasi-Experimental Evidence

76 Pages Posted: 14 Feb 2019 Last revised: 2 Mar 2019

See all articles by Dany Kessel

Dany Kessel

Sodertorn University (University College of Southern Stockholm); Research Institute of Industrial Economics (IFN)

Björn Tyrefors

Research Institute of Industrial Economics (IFN); Stockholm University - Department of Economics

Roine Vestman

Stockholm University - Department of Economics; Swedish House of Finance

Date Written: February 5, 2019

Abstract

We exploit a quasi-experiment to provide new evidence on the magnitude of the housing wealth effect. We estimate an immediate shock of approximately $-$15% to house prices close to one of Stockholm's airports after its operations were unexpectedly continued. This source of price variation is ideal for identifying housing wealth effects since it is unrelated to macroeconomic conditions. We estimate a micro elasticity of 0.45 among purchasers of new cars. The implied aggregate MPC on cars is however only 0.13 cents per dollar. The response is entirely concentrated to homeowners with a loan-to-value ratio between 0.6 and 0.8.

Keywords: house prices, housing wealth, consumption, house price elasticity, marginal propensity to consume, collateral effect

JEL Classification: D12, E21, E32, E44, E60

Suggested Citation

Kessel, Dany and Tyrefors, Björn and Vestman, Roine, The Housing Wealth Effect: Quasi-Experimental Evidence (February 5, 2019). Swedish House of Finance Research Paper No. 19-5. Available at SSRN: https://ssrn.com/abstract=3329395 or http://dx.doi.org/10.2139/ssrn.3329395

Dany Kessel

Sodertorn University (University College of Southern Stockholm) ( email )

Alfred Nobels allé 7, Flemingsberg
Stockholm, Stockholm 14189
Sweden

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden
+46707173802 (Phone)

HOME PAGE: http://https://sites.google.com/view/dany-kessel-phd-candidate/startsida

Björn Tyrefors

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

HOME PAGE: http://www.ifn.se

Stockholm University - Department of Economics ( email )

Universitetsvägen 10 A
House A, floor 4 and 7
Frescati, Stockholm
Sweden

Roine Vestman (Contact Author)

Stockholm University - Department of Economics ( email )

Universitetsvägen 10 A
House A, floor 4 and 7
Frescati, Stockholm
Sweden

HOME PAGE: http://www.ne.su.se/

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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