Housing Wealth Effects: The Long View

We provide new time-varying estimates of the housing wealth effect back to the 1980s. We use three identification strategies: ordinary least squares with a rich set of controls, the Saiz housing supply elasticity instrument, and a new instrument that exploits systematic differences in city-level exposure to regional house price cycles. All three identification strategies indicate that housing wealth elasticities were if anything slightly smaller in the 2000s than in earlier time periods. This implies that the important role housing played in the boom and bust of the 2000s was due to larger price movements rather than an increase in the sensitivity of consumption to house prices. Full-sample estimates based on our new instrument are smaller than recent estimates, though they remain economically important. We find no significant evidence of a boom–bust asymmetry in the housing wealth elasticity. We show that these empirical results are consistent with the behaviour of the housing wealth elasticity in a standard life-cycle model with borrowing constraints, uninsurable income risk, illiquid housing, and long-term mortgages. In our model, the housing wealth elasticity is relatively insensitive to changes in the distribution of loan-to-value (LTV) for two reasons: first, low-leverage homeowners account for a substantial and stable part of the aggregate housing wealth elasticity; second, a rightward shift in the LTV distribution increases not only the number of highly sensitive constrained agents but also the number of underwater agents whose consumption is insensitive to house prices.

WILL THE HOUSING WEALTH EFFECT COMPENSATE THE MACRO-ECONOMY? EVIDENCE FROM TAIWAN’S DOMESTIC CONSUMPTION

This paper examines the relationship between the escalation in housing prices and categories of Taiwan’s domestic consumption. While disposable income remains constant, a rapid escalation in housing prices should have a negative impact on unaffordability within society. However, under the hypothesis of the housing wealth effect, an increase in housing values should compensate the macro-economy by increasing consumption in the GDP calculation. Taiwanese data from 2007Q1 to 2018Q1 were adopted as the sample. From the vector error correction model results, it was found that over the course of the long-run equilibrium relationship, there was a statistically significant positive relationship that the society consumes more on durable goods of communication-related nature, as well as on non-durable goods such as personal clothing and accessories and leisure/cultural tourism. As for the short-run dynamic adjustment, there was a statistically significant positive relationship that the society consumes more in the durable goods component categories. It was identified that transportationrelated consumption accounted for the major part of the durable goods component. Therefore, with the rapid escalation in housing prices, it was observed that these consumption would compensate the consumption figures in the GDP calculation in Taiwan, thereby providing evidence that housing prices were related to macroeconomic performance.

Wealth Effects Of Housing Market And Stock Market On Outbound Tourism In Singapore

This research note investigates the effects of stock market wealth and housing wealth on the demand for international tourism by the residents of Singapore while controlling for other important determinants for outbound tourism. The empirical results suggest that there are weak evidence to support the presence of stock market wealth effect and strong evidence to support the presence of housing wealth effect on outbound tourism. Weak evidence of stock market wealth effect is observed because the model derived from Akaike Information Criterion does not find significant effect of stock market wealth, but the model derived from Schwartz Criterion shows that positive stock market wealth effect is present. Strong evidence of housing wealth effect is observed because models estimated with both criteria show that housing wealth has negative effect on such consumption. The conclusion explains why the importance of public housing and the government intervention in public housing in Singapore lead to such negative housing wealth effect.

The effect of housing wealth on tourism consumption in China: Age and generation cohort comparisons

Based on the theoretical framework of the life-cycle/permanent income model, an in-depth analysis on the effect of housing wealth on tourism consumption was conducted in this research, with a special focus on the conditional effects of age and cohort generations. Using the 2014–2016 Chinese Household Survey data, the study finds that a significant housing wealth effect on tourism consumption exists in China, which is more significant than income effects. The results also illustrate the considerable conditional effects of age and cohort generations on the housing wealth effect. Future studies should focus on the effect of housing wealth when forecasting tourist demand to avoid an estimation bias. In addition, age and cohort differences should also be emphasized in tourist studies.

International Real Estate Review

In this study, we estimate the housing wealth effect of households with different income levels. Since we expect the housing wealth effect to vary based on the different income levels, we use the threshold estimation technique developed in Hansen (1999) instead of imposing an exogenous criterion to divide the sample by income level. This econometric technique is developed for panels with individual-specific fixed effects. Therefore, we apply this econometric method on the findings in the existing literature to estimate the housing wealth effect, while considering the heterogeneity in different income categories. We obtain individual level data from the 2012 to 2016 Korea Household Finance and Welfare Survey (KHFWS) and find statistically significant threshold income levels, thus indicating households show different behaviors based on the threshold income. We provide the groundwork for future research to identify the target group who maximizes their wealth effect, which has housing policy implications.

Saving Behavior and Housing Wealth Evidence from German Micro Data

Housing property is the most important position in a household’s wealth portfolio. Even though there is strong evidence that house price cycles and saving patterns behave synchronously, the underlying causes remain controversial. The present paper examines if there is a wealth effect of house prices on savings using household-level panel data from the German Socio-Economic Panel for the period 1996-2012. We find that young homeowners decrease their savings in response to unanticipated house price shocks, whereas old households hardly respond to house price changes. Although effects are relatively low in magnitude, we interpret this as evidence of a housing wealth effect.

Housing wealth effects for private and subsidized homeowners

Purpose This paper aims to examine the effect of housing wealth on household consumption when there are resale and refinancing constraints that prevent housing assets from being cashed out. Design/methodology/approach Based on Household Expenditure Survey data in Hong Kong from 1999 to 2010, regression analysis is applied to compare the housing wealth effects of private and subsidized homeowners. Propensity score matching is adopted to ensure that the two groups of homeowners share similar household income. Further regression analysis is conducted to examine private homeowners’ consumption when their recourse mortgages are in negative equity. Findings Subsidized homeowners, who are not allowed to resell their units before sharing their capital gain with the government, experienced an insignificant housing wealth effect. While private homeowners experienced a significant housing wealth effect, the effect was weakened in the presence of a resale constraint induced by negative equity. The results remain robust after the application of more rigorous sample selection through propensity score matching. Research limitations/implications The analyses are subject to two potential data limitations. One is a relatively small sample size. The other is that data on financial assets and mortgages are unavailable and have to be indirectly controlled through household characteristics. Nevertheless, our estimated marginal propensity to consume out of housing wealth is 0.03 of the annual household consumption for private homeowners, which is within the range of estimates reported in previous literature. Practical implications This study shows that the housing wealth effect enjoyed in the private sector does not necessarily apply to the subsidized sector where resale and refinancing constraints exist. This is not to suggest that the constraints be removed. Rather, policymakers should be aware of the tradeoff: while the constraints ensure that government subsidies are used to assist home ownership, not capital gain, they also bring about consumption inequality in a society, especially in a booming housing market. Originality/value Our findings extend the literature on the housing wealth effect, which has been exclusively focusing on private homeowners, to subsidized homeowners. This study also adds to the literature on housing welfare by highlighting that the resale constraints of subsidized housing can weaken the housing wealth effect.