Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/267946 
Year of Publication: 
2022
Series/Report no.: 
IFS Working Paper No. W22/15
Publisher: 
Institute for Fiscal Studies (IFS), London
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.
Subjects: 
House prices
leverage
consumption
home investment
JEL: 
E21
D14
D15
G51
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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