Consumption, House Prices and Expectations

42 Pages Posted: 19 Oct 2005

See all articles by Orazio Attanasio

Orazio Attanasio

University College London - Department of Economics; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Laura Blow

Institute for Fiscal Studies (IFS)

Robert Hamilton

Bank of England - Monetary Analysis

Andrew Leicester

Institute for Fiscal Studies (IFS)

Date Written: September 2005

Abstract

Over much of the past 25 years, the cycles of house price and consumption growth have been closely synchronised. Three main hypotheses for this co-movement have been proposed in the literature. First, that an increase in house prices raises households' wealth, particularly for those in a position to trade down the housing ladder, which increases their desired level of expenditure. Second, that house price growth increases the collateral available to homeowners, reducing credit constraints and thereby facilitating higher consumption. And third, that house prices and consumption have tended to be influenced by common factors. This paper finds that the relationship between house prices and consumption is stronger for younger than older households, and that the consumption of homeowners and renters are equally aligned with the house price cycle. This suggests that neither the wealth nor the collateral channels have been the principal cause of the relationship between house prices and consumption - instead, the most important factor is likely to have been common causality.

Suggested Citation

Attanasio, Orazio and Blow, Laura and Hamilton, Robert and Leicester, Andrew, Consumption, House Prices and Expectations (September 2005). Available at SSRN: https://ssrn.com/abstract=824744 or http://dx.doi.org/10.2139/ssrn.824744

Orazio Attanasio

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom
+44 20 7679 5880 (Phone)
+44 20 7916 2775 (Fax)

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Laura Blow

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Robert Hamilton (Contact Author)

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Andrew Leicester

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
319
Abstract Views
2,379
rank
95,067
PlumX Metrics