Financial Market and Housing Wealth Effects on Consumption
30 Pages Posted: 16 Feb 2005
Date Written: February 2005
The objective of this study is to examine the financial market and housing wealth effects on consumption. Housing has the dual functions as both a commodity yielding a flow of housing services and an investment asset yielding a flow of capital income. The findings from this study suggest that a rise in housing price has both a positive wealth effect and a negative price effect on consumption. While the positive wealth effect is caused by an increase in capital income, the negative price effect is caused by an increase in the cost of housing services. In addition, the housing market wealth effect increases, at the expense of the price effect, with the levels of leverage and homeownership of the housing market. These findings imply that the government policy of land supply aiming to stimulate the economy should strike a balance between the possible wealth and price effects of the housing market.
Keywords: Consumption, Housing market, Financial market, Wealth effect
JEL Classification: D12, E2, R21, R34
Suggested Citation: Suggested Citation
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