1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

House Prices and Economic Activity

This paper reviews the role of house prices in influencing private consumption and residential investment in OECD countries. Deregulation of the mortgage markets in most OECD countries since the 1970s has made it easier for households to borrow for current consumption on the basis of their housing wealth, and the easing of borrowing constraints has often been accompanied by sizeable withdrawal of housing equity. The analysis presented in the paper and a review of existing empirical work for the major OECD countries suggest that house prices have a significant positive impact on private consumption through wealth effects and/or an easing of liquidity constraints. House prices also influence the profitability of house building, and in many countries there is a close association between profitability of house construction and private residential investment. A corollary of these results is that residential property prices can be useful indicators of demand pressures in the economy ...

English

Keywords: house prices, consumption, wealth
JEL: D12: Microeconomics / Household Behavior and Family Economics / Consumer Economics: Empirical Analysis; E21: Macroeconomics and Monetary Economics / Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy / Macroeconomics: Consumption; Saving; Wealth; D91: Microeconomics / Micro-Based Behavioral Economics / Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
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