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New evidence on housing wealth and consumption channels

Zhu, B., Li, L., Downs, D. H. and Sebastian, S. (2019) New evidence on housing wealth and consumption channels. Journal of Real Estate Finance and Economics, 58 (1). pp. 51-79. ISSN 1573-045X

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To link to this item DOI: 10.1007/s11146-017-9638-8


This paper provides new evidence on the effect of housing wealth on consumption by focusing on the impact of home-equity extraction. We develop a household consumption decision model to illustrate the differential effect of home-equity extraction, relative to net home equity, on consumption. The home-equity extraction channel is also shown to vary with household-level borrowing constraints. Based on U.S. household survey data and an instrumental-variables approach, our empirical results validate model predictions. We find that the marginal propensity to consume is two times higher for the home-equity extraction channel relative to the conventional housing wealth effect. The consumption effect of home-equity extraction is more than 2.5 times greater for liquidity-constrained households than for unconstrained households. These results are even more pronounced in the case of durable goods consumption for constrained borrowers.

Item Type:Article
Divisions:Henley Business School > Real Estate and Planning
ID Code:72855


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