House price shocks, negative equity, and household consumption in the United Kingdom

Richard Disney, John Gathergood, Andrew Henley

Research output: Contribution to journalArticlepeer-review

81 Citations (SciVal)

Abstract

We examine the impact of unanticipated housing capital gains on consumption behavior using data from the British Household Panel Survey and county-level house price data. We condition the models on household financial expectations and on household real financial capital gains imputed from the Family Resources Survey. We find a marginal propensity to consume out of unanticipated shocks to housing wealth of 0.01. Omitting the measure of financial expectations biases the results upward. We find little evidence of heterogeneity in responses of young and old homeowners, but differences between owners and renters. We also find asymmetric behavior between house price rises and falls, and a disproportionate impact on saving if the household had negative housing equity at the start of the period. (JEL: D91, E21, R31)
Original languageEnglish
Pages (from-to)1179-1207
JournalJournal of the European Economic Association
Volume8
Issue number6
DOIs
Publication statusPublished - Dec 2010

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