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Housing-consumption channel of mortgage demand

Author

Listed:
  • Ahlfeldt, Gabriel M.
  • 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 M. & Szumilo, Nikodem & Tripathy, Jagdish, 2024. "Housing-consumption channel of mortgage demand," LSE Research Online Documents on Economics 126802, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:126802
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    File URL: http://eprints.lse.ac.uk/126802/
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    References listed on IDEAS

    as
    1. James Cloyne & Kilian Huber & Ethan Ilzetzki & Henrik Kleven, 2019. "The Effect of House Prices on Household Borrowing: A New Approach," American Economic Review, American Economic Association, vol. 109(6), pages 2104-2136, June.
    2. Òscar Jordà & Moritz Schularick & Alan M. Taylor, 2016. "The great mortgaging: housing finance, crises and business cycles," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 31(85), pages 107-152.
    3. 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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