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Housing wealth or economic climate: Why do house prices matter for well-being?

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  • Anita Ratcliffe

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Abstract

This study investigates whether and why house prices matter for well-being. House prices may influence well-being via a wealth/access-to-credit mechanism, as a rise in prices increases housing wealth and the collateral value of a house, and via a relative concerns mechanism, if renters compare themselves to homeowners and vice versa. Alternatively, any correlation between house prices and well-being may simply reflect broader economic conditions rather than a causal effect. Using local area house price data, this study distinguishes between these alternative explanations by comparing the correlation between local house prices and well-being for homeowners and renters. A small positive correlation between house prices and well-being exists for both homeowners and renters, indicating the absence of a wealth/credit mechanism or relative concerns mechanism. This correlation cannot be explained by economic variables such as local unemployment, earnings or earnings expectations, hinting at a purely psychological phenomenon.

Suggested Citation

  • Anita Ratcliffe, 2010. "Housing wealth or economic climate: Why do house prices matter for well-being?," The Centre for Market and Public Organisation 10/234, The Centre for Market and Public Organisation, University of Bristol, UK.
    • Handle: RePEc:bri:cmpowp:10/234
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    File URL: http://www.bristol.ac.uk/cmpo/publications/papers/2010/wp234.pdf
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    Cited by:

    1. Clément Bellet, 2017. "Essays on Inequality, Social Preferences and Consumer Behavior," Sciences Po publications info:hdl:2441/vbu6kd1s68o, Sciences Po.
    2. Bellet, Clement, 2017. "The paradox of the Joneses: superstar houses andmortgage frenzy in suburban America," LSE Research Online Documents on Economics 69044, London School of Economics and Political Science, LSE Library.
    3. Clement Bellet, 2017. "The Paradox of the Joneses: Superstar Houses and Mortgage Frenzy in Suburban America," CEP Discussion Papers dp1462, Centre for Economic Performance, LSE.

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    More about this item

    Keywords

    Well-being; House prices; Wealth; Economic climate;
    All these keywords.

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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