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Investment Diversion and Equity Release: The Macroeconomic Consequences of Increasing Property Values?

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  • Alan W. Evans

    (Department of Economics, Faculty of Urban and Regional Studies, University of Reading, Whiteknights, Reading RG6 2BU, UK)

Abstract

The 1970s' argument that investment in land and property diverted finance from 'productive' investment in manufacturing is shown to be fallacious. The seller of property at higher prices will recirculate that investment into productive sectors, and arguments that the distinction between services and manufacturing is important are erroneous. The 1980s' argument that households are able to release their increased equity gain from house price inflation to finance consumption is the converse of this argument. Rising house prices will require potential buyers to save more in advance of purchase. This paper argues that both lines of reasoning neglect the influence of rising property values on the rate of savings. Rising property prices lead people to believe their wealth to have increased and thus depress their level of savings and increase consumption. This is seen as a particularly British problem because of the impact of land use planning restrictions on land supply, and thus land prices, and the recent shift from rates to the community charge.

Suggested Citation

  • Alan W. Evans, 1991. "Investment Diversion and Equity Release: The Macroeconomic Consequences of Increasing Property Values?," Urban Studies, Urban Studies Journal Limited, vol. 28(2), pages 173-182, April.
    • Handle: RePEc:sae:urbstu:v:28:y:1991:i:2:p:173-182
    DOI: 10.1080/00420989120080181
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    References listed on IDEAS

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    1. Bover, Olympia & Muellbauer, John & Murphy, Anthony, 1989. "Housing, Wages and UK Labour Markets," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(2), pages 97-136, March.
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    4. Peek, Joe, 1983. "Capital Gains and Personal Saving Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(1), pages 1-23, February.
    5. Kul B. Bhatia, 1987. "Real Estate Assets and Consumer Spending," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 437-444.
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