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Housing-consumption channel of mortgage demand

Author

Listed:
  • Gabriel M. Ahlfeldt
  • Nikodem Szumilo
  • Jagdish Tripathy

Abstract

We quantify the housing-consumption channel in mortgage demand according to which households borrow more following house-price increases since housing and non-housing consumption are imperfect substitutes. To identify this channel, we take a structural approach to mortgage demand and supply, exploiting exogenous variation in house-price growth and a unique dataset with matched transaction- price and mortgage information. We estimate an elasticity of mortgage borrowing to house-prices of 0.82. Counterfactual analysis of the general-equilibrium of housing and mortgage markets shows that, sans housing-consumption channel, mortgage and house-price growth in the UK would have been 50% and 31% lower, respectively, since the 1990s.

Suggested Citation

  • Gabriel M. Ahlfeldt & Nikodem Szumilo & Jagdish Tripathy, 2024. "Housing-consumption channel of mortgage demand," Berlin School of Economics Discussion Papers 0044, Berlin School of Economics.
    • Handle: RePEc:bdp:dpaper:0044
    DOI: 10.48462/opus4-5572
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    References listed on IDEAS

    as
    1. Gabriel M. Ahlfeldt & Stephen J. Redding & Daniel M. Sturm & Nikolaus Wolf, 2015. "The Economics of Density: Evidence From the Berlin Wall," Econometrica, Econometric Society, vol. 83, pages 2127-2189, November.
    2. Christian A. L. Hilber & Wouter Vermeulen, 2016. "The Impact of Supply Constraints on House Prices in England," Economic Journal, Royal Economic Society, vol. 126(591), pages 358-405, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    House prices; mortgage demand; housing consumption; consumption channel; property taxes;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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