House price rises and borrowing to invest

Arbeitspapier

Household borrowing and spending rise with house prices, particularly for leveraged households, but household spending is not consumption. We propose an alternative borrow-to-invest channel by which house price gains affect household spending on residential investment. We show that rational, leveraged households have an incentive to make additional residential investments when house prices rise. Our empirical compares responses in different kinds of spending across more and less leveraged households. We find strong evidence of the borrow-to-invest channel in UK data. Credit constraints matter through reducing access to leveraged returns and so reducing lifetime resources, rather than through consumption smoothing.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IFS Working Papers ; No. W20/02

Classification and Topics

• Classification: Wirtschaft ; Macroeconomics: Consumption; Saving; Wealth ; Household Saving; Personal Finance ; Intertemporal Household Choice; Life Cycle Models and Saving
• Subject: House prices ; leverage ; consumption ; home investment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Crossley, Thomas ; Levell, Peter ; Low, Hamish
• Event: Veröffentlichung
• (who): Institute for Fiscal Studies (IFS)
• (where): London
• (when): 2020

Further information

• DOI: doi:10.1920/wp.ifs.2020.220
• Handle: http://hdl.handle.net/10419/223278
• Last update: 10.03.2025, 11:42 AM CET