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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 channel by which house price gains affect household spending on residential investment. We show that rational, leveraged households have an incentive to make additional residential investments when house prices rise. Our empirical compares responses in different kinds of spending across more and less leveraged households. We find strong evidence of the borrow-to-invest channel in UK data. Credit constraints matter through reducing access to leveraged returns and so reducing lifetime resources, rather than through consumption smoothing.
Authors

Research Fellow University of Oxford
Hamish is the James Meade Professor of Economics at the University of Oxford, a Professorial Fellow of Nuffield College and a Research Fellow at IFS.

Research Fellow University of Michigan
Tom is a Research Fellow at IFS, a Research Professor for the Institute for Social Research at the University of Michigan.

Deputy Research Director
Peter joined in 2009. He has published several papers on the microeconomics of household spending and labour supply decisions over the life-cycle.
Working Paper details
- DOI
- 10.1920/wp.ifs.2020.220
- Publisher
- The IFS
Suggested citation
T, Crossley and P, Levell and H, Low. (2020). House Price Rises and Borrowing to Invest. London: The IFS. Available at: https://ifs.org.uk/publications/house-price-rises-and-borrowing-invest (accessed: 10 February 2025).
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