Housing-consumption channel of mortgage demand

Ahlfeldt, Gabriel M. ORCID: 0000-0001-5664-3230, Szumilo, Nikodem and Tripathy, Jagdish (2024) Housing-consumption channel of mortgage demand. CEP Discussion Papers (CEPDP2023). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

We quantify the housing-consumption channel in mortgage demand according to which households borrow more following house-price increases since housing and non-housing consumption are imperfect substitutes. To identify this channel, we take a structural approach to mortgage demand and supply, exploiting exogenous variation in house-price growth and a unique dataset with matched transaction-price and mortgage information. We estimate an elasticity of mortgage borrowing to house-prices of 0.82. Counterfactual analysis of the general-equilibrium of housing and mortgage markets shows that, sans housing-consumption channel, mortgage and house-price growth in the UK would have been 50% and 31% lower, respectively, since the 1990s.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information:	© 2024 The Author(s)
Divisions:	Geography & Environment
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
JEL classification:	G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages R - Urban, Rural, and Regional Economics > R2 - Household Analysis > R21 - Housing Demand
Date Deposited:	19 Feb 2025 17:39
Last Modified:	19 Feb 2025 17:58
URI:	http://eprints.lse.ac.uk/id/eprint/126802

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