Abstract
This paper investigates the effects of regional house prices on consumption growth, with a focus on heterogeneity across homeownership statuses and lifecycle stages, using household-level panel data in Korea from 2004 to 2017. The empirical estimation results indicate, firstly, that the growth of regional house prices has overall positive effects on consumption growth in the full sample including homeowners and renters. Secondly, house prices have significant and large effects on consumption growth for homeowners, while the effects are sharply reversed for renters, being weakly negative. Thirdly, the sensitivity of homeowners’ consumption in response to house prices differs across different stages of the lifecycle. The consumption sensitivity is greatest in the old age cohort for the sample covering the owners of single and multiple homes. When using a subsample of only single homeowners, however, the young cohort turns out to have the highest sensitivity, implying that young single homeowners face high borrowing constraints and expected income volatility. Finally, renters’ consumption sensitivity in response to house prices becomes more negative over the lifecycle.
Highlights
House prices can be crucial to the real economy from two perspectives
The estimation results for the whole sample indicate that the growth of provincial and county-level house prices has overall positive effects on household consumption growth, indicating that the combined wealth and substitution effects overall exceed the income effects of house prices on consumption, as discussed in [2]
The weakly nonnegative signs in young renters implies that the income effect, a reduction of consumption in response to house price appreciation, in the young cohort is relatively smaller than in the middle or old age cohorts
Summary
House prices can be crucial to the real economy from two perspectives. They can affect the real economy through the household consumption channel. Some previous studies using micro data for the Korean case, such as [8,9,10], investigate the effects of the valuation of the real assets of homeowners on consumption. Some previous studies using micro data for the Korean case, such as [8,9,10], investigate the effects of the valuation of the real assets of homeowners.
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