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Household borrowing and spending rise with house prices, particularly for leveraged households, but household spending is not consumption. We propose a 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. Credit constraints then matter through reducing access to leveraged returns and so reducing lifetime resources, rather than through consumption smoothing. 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.
Authors
![Thomas Crossley](/sites/default/files/styles/square_desktop/public/2022-07/Tom%20Crossley.jpg?itok=8BNVWAtq)
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.
![Peter Levell](/sites/default/files/styles/square_desktop/public/2022-06/Peter_Levell.jpg?itok=QouDiSQD)
Associate Director
Peter joined in 2009. He has published several papers on the microeconomics of household spending and labour supply decisions over the life-cycle.
![Hamish Low](/sites/default/files/styles/square_desktop/public/2022-07/Hamish_Low.jpg?itok=SxQtBzSd)
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.
Working Paper details
- DOI
- 10.1920/wp.ifs.2024.0924
- Publisher
- Institute for Fiscal Studies
Suggested citation
T, Crossley and P, Levell and H, Low. (2024). House price rises and borrowing to invest. 24/09. London: Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/house-price-rises-and-borrowing-invest-1 (accessed: 30 June 2024).
Grant
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