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Are Housing Wealth Effects Asymmetric in Booms and Busts?

Author

Listed:
  • Mairead Roiste

    (Victoria University of Wellington)

  • Apostolos Fasianos

    (Hellenic Ministry of Finance)

  • Robert Kirkby
  • Fang Yao

    (Department of Economics, Reserve Bank of New Zealand)

Abstract

This paper investigates the effects of household indebtedness and housing wealth on consumption. To identify exogenous movements of housing wealth and leverage, we estimate housing supply elasticities for New Zealand urban centers. We construct synthetic panel series by using household survey data to estimate the marginal propensity to consume out of exogenous changes in housing wealth, while controlling for the household leverage ratio. Our empirical results show that, on average, the marginal propensity to consume out of housing wealth is about 3 cents out of one dollar. But it is larger, about 4 cents, in response to falling house wealth than to increasing housing wealth, about 2 cents. We further investigate the role of household indebtedness in accounting for the asymmetric effect. Our findings suggest that household leverage reinforces the housing wealth effect in a housing bust, but dampens the housing wealth effect in a boom.

Suggested Citation

  • Mairead Roiste & Apostolos Fasianos & Robert Kirkby & Fang Yao, 2021. "Are Housing Wealth Effects Asymmetric in Booms and Busts?," The Journal of Real Estate Finance and Economics, Springer, vol. 62(4), pages 578-628, May.
  • Handle: RePEc:kap:jrefec:v:62:y:2021:i:4:d:10.1007_s11146-020-09757-6
    DOI: 10.1007/s11146-020-09757-6
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    More about this item

    Keywords

    Household debt; Housing wealth effects; Leverage; Marginal propensity to consume;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis

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