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House Price Shocks, Negative Equity, and Household Consumption in the United Kingdom

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  • Richard Disney
  • John Gathergood
  • Andrew Henley

Abstract

We examine the impact of unanticipated housing capital gains on consumption behavior using data from the British Household Panel Survey and county-level house price data. We condition the models on household financial expectations and on household real financial capital gains imputed from the Family Resources Survey. We find a marginal propensity to consume out of unanticipated shocks to housing wealth of 0.01. Omitting the measure of financial expectations biases the results upward. We find little evidence of heterogeneity in responses of young and old homeowners, but differences between owners and renters. We also find asymmetric behavior between house price rises and falls, and a disproportionate impact on saving if the household had negative housing equity at the start of the period. (JEL: D91, E21, R31) (c) 2010 by the European Economic Association.

Suggested Citation

  • Richard Disney & John Gathergood & Andrew Henley, 2010. "House Price Shocks, Negative Equity, and Household Consumption in the United Kingdom," Journal of the European Economic Association, MIT Press, vol. 8(6), pages 1179-1207, December.
  • Handle: RePEc:tpr:jeurec:v:8:y:2010:i:6:p:1179-1207
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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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