Working Paper No. 1262

The Housing Wealth Effect: Quasi-Experimental Evidence

Published: February 5, 2019Pages: 76Keywords: House prices; Housing wealth; Consumption; House price elasticity; Marginal propensity to consume; Collateral effectJEL-codes: D12; E21; E32; E44; E60

The Housing Wealth Effect: Quasi-Experimental Evidence Dany Kessel, Björn Tyrefors and 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.

 

Björn Tyrefors

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Ph: +46 8 665 4521
bjorn.tyrefors@ifn.se

Dany Kessel

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Mob: +46 70 717 3802
dany.kessel@ifn.se

Interdisciplinary European Studies

The European Union in a Changing World Order

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This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

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