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Housing, credit and consumer expenditure

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  • John N. Muellbauer

Abstract

Many factors have contributed to the development of credit markets, easing access of households to credit. This paper considers the implications of easier credit for the influence of higher house prices on consumer expenditure. It argues that with poorly developed credit markets, the effect is likely to be negative, but becomes positive as access to housing collateral increases and down-payments for first time homebuyers fall in relation to values. The implications for differences between countries and changes in consumer behaviour over time are explored. Previous studies are reviewed: the omission of credit liberalization and other controls has often biased estimates of housing 'wealth' effects on consumption. New empirical estimates for the U.K. and U.S. suggest that there was no housing 'wealth effect' before credit market liberalization, but that the housing collateral effect is now significant, larger than the stock market wealth effect, and about twice as large in the U.S. as the U.K.

Suggested Citation

  • John N. Muellbauer, 2007. "Housing, credit and consumer expenditure," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 267-334.
  • Handle: RePEc:fip:fedkpr:y:2007:p:267-334
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    More about this item

    Keywords

    Consumer behavior; Credit; Housing;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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