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Working Paper No. 1262

The Housing Wealth Effect: Quasi-Experimental Evidence

Working Paper
Reference
Kessel, Dany, Björn Tyrefors and Roine Vestman (2019). “The Housing Wealth Effect: Quasi-Experimental Evidence”. IFN Working Paper No. 1262. Stockholm: Research Institute of Industrial Economics (IFN).

Authors
Dany Kessel, Björn Tyrefors, Roine Vestman

We exploit a quasi-experiment to provide new evidence on the magnitude of the housing wealth effect. We estimate an immediate shock of approximately 15% to house prices close to one of Stockholm's airports after its operations were unexpectedly continued as a result of political bargaining. This source of price variation is ideal to identify housing wealth effects since it is local and unrelated to variation in macroeconomic conditions.

Using a household data set with granular geographic information on location of primary residence, we find an elasticity of 0.45 among purchasers of new cars. Converting our estimate to an aggregate MPC on cars, it is however only 0.13 cents per dollar. The MPC is entirely concentrated to homeowners with a combined loan-to-value ratio between 0.6 and 0.8 which, on the one hand, confirms the key role of household balance sheets but on the other hand refutes a monotone relationship between response and household leverage.

Dany Kessel

+46 (0)70 717 3802
dany.kessel@ifn.se

Björn Tyrefors

+46 (0)8 665 4521
+46 (0)70 467 8003
bjorn.tyrefors@ifn.se