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The Effect of House Prices on Household Consumption in Italy

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  • R. Calcagno
  • E. Fornero
  • M. Rossi

Abstract

This paper studies the effect of a change in real estate wealth on the consumption behaviour of Italian households, using the Bank of Italy's Survey of Household Income and Wealth dataset. We relate annual household consumption to capital gains in housing, controlling for characteristics such as age. In line with the empirical predictions of our model, we find the oldest households - which are less affected by the higher costs of future rent - to be the most affected by increases in real net housing wealth. Younger households, on the other hand, are not significantly affected in their consumption decisions by house price increases. We also take into account the fact that benefiting from capital gains is conditional on owning housing wealth and estimate the different impacts of house price changes on the savings behaviours of both homeowners and renters. Our estimates suggest that house price increases raise consumption not only for homeowners but also for renters.
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  • R. Calcagno & E. Fornero & M. Rossi, 2009. "The Effect of House Prices on Household Consumption in Italy," The Journal of Real Estate Finance and Economics, Springer, vol. 39(3), pages 284-300, October.
    • Handle: RePEc:kap:jrefec:v:39:y:2009:i:3:p:284-300
    DOI: 10.1007/s11146-009-9187-x
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    Cited by:

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    2. Renata Bottazzi & Serena Trucchi & Matthew Wakefield, 2013. "Wealth effects and the consumption of Italian households in the Great Recession," IFS Working Papers W13/21, Institute for Fiscal Studies.
    3. Eddie Chi-Man Hui & Tony K.K. Lo & Jia Chen & Ziyou Wang, 2012. "Housing and consumer markets in urban China," Construction Management and Economics, Taylor & Francis Journals, vol. 30(2), pages 117-131, December.
    4. Philip Du Caju & Guillaume Périlleux & François Rycx & Ilan Tojerow, 2021. "A Bigger House at the Cost of an Empty Fridge? The Effect of Households' Indebtedness on Their Consumption: Micro-Evidence Using Belgian HFCS Data," LIDAM Discussion Papers IRES 2021008, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    5. Evren Ceritoglu, 2017. "The effect of house price changes on cohort consumption in Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 17(3), pages 1-99–110.
    6. Renata Bottazzi & Serena Trucchi & Matthew Wakefield, 2020. "Consumption Responses to a Large Shock to Financial Wealth: Evidence from Italy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 762-789, April.
    7. Basiglio, Stefania, 2018. "Essays on financial behaviour of households and firms," Other publications TiSEM c13423c5-8bf2-44a7-baa7-3, Tilburg University, School of Economics and Management.
    8. Liu, Lu & Wang, Qiuyun & Zhang, Anquan, 2019. "The impact of housing price on non-housing consumption of the Chinese households: A general equilibrium analysis," The North American Journal of Economics and Finance, Elsevier, vol. 49(C), pages 152-164.
    9. Giampaolo Gabbi & Elisa Ticci & Pietro Vozzella, 2014. "Financialisation and Economic and Financial Crises: The Case of Italy," FESSUD studies fstudy23, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    10. Stefania Basiglio, 2022. "‘Take the Money and Run’: Dutch Evidence on Inheritance and Transfer Receiving and Divorce," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 8(3), pages 585-605, November.

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    More about this item

    Keywords

    Housing wealth; Marginal propensity of consumption on wealth; Life cycle consumption; D11; D12;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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