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Housing-Consumption Channel of Mortgage Demand

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  • Ahlfeldt, Gabriel
  • Szumilo, Nikodem
  • Tripathy, Jagdish

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

  • Ahlfeldt, Gabriel & Szumilo, Nikodem & Tripathy, Jagdish, 2024. "Housing-Consumption Channel of Mortgage Demand," CEPR Discussion Papers 19370, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19370
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    More about this item

    Keywords

    House prices;

    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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