Heterogeneities in the House Price Elasticity of Consumption

55 Pages Posted: 19 Nov 2019 Last revised: 5 Dec 2019

See all articles by Nazanin Khazra

Nazanin Khazra

University of Illinois at Urbana Champaign

Date Written: November 8, 2019

Abstract

I provide new evidence on the house price elasticity of consumption by exploiting micro-level consumption data from the Nielsen consumer panel for 2004 through 2016. I estimate elasticity as a non-parametric function of household characteristics, locations and time using Generalized Random Forest (GRF), a causal machine learning model. At the county-level, the average elasticity ranges from 0.04 to 0.16 with some neighboring counties being up to eight standard deviations apart, while household elasticities range from 0.01 to 0.2. Among all characteristics, having a child, household size, and the age of a household head create substantial disparities. I find that locations with volatile housing markets are less elastic. This means that failing to account for local heterogeneities overestimates the magnitude of total consumption responses in booms and busts. Moreover, local heterogeneities in elasticity camouflage the existing asymmetry in responses. Looking within a county reveals that households, especially more financially-constrained households, are more elastic in busts than in booms. Policymakers should account for this individual and geographic heterogeneity in consumption responses to house price changes when formulating policy.

Keywords: House Price Elasticity, Consumption, Generalized Random Forest, Machine Learning

Suggested Citation

Khazra, Nazanin, Heterogeneities in the House Price Elasticity of Consumption (November 8, 2019). Available at SSRN: https://ssrn.com/abstract=3483279 or http://dx.doi.org/10.2139/ssrn.3483279

Nazanin Khazra (Contact Author)

University of Illinois at Urbana Champaign ( email )

410 David Kinley Hall
1407 W. Gregory
Urbana, IL 61801
United States

HOME PAGE: http://https://www.nazaninkhazra.com

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