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House price rises and borrowing to invest

Author

Listed:
  • Thomas F. Crossley

    (Institute for Fiscal Studies)

  • Peter Levell

    (Institute for Fiscal Studies)

  • Hamish Low

    (Institute for Fiscal Studies)

Abstract

Household borrowing and spending rise with house prices, particularly for leveraged households, but household spending is not consumption. We propose an alternative borrow-to-invest motive by which house price gains affect household spending on residential investment: rational, leveraged households have an incentive to make additional residential investments when house prices rise. We test this motive by comparing responses in different categories of spending across more and less leveraged households. We find strong evidence of the borrow-to-invest motive in UK data. Credit constraints matter through reducing access to leveraged returns and so reducing lifetime resources, rather than through consumption smoothing.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Thomas F. Crossley & Peter Levell & Hamish Low, 2024. "House price rises and borrowing to invest," IFS Working Papers W24/09, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:24/09
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    Cited by:

    1. Rowena Crawford & Polly Simpson, 2020. "The impact of house prices on pension saving in early adulthood," IFS Working Papers W20/38, Institute for Fiscal Studies.

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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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