Premium
The Life‐Cycle Effects of House Price Changes
Author(s) -
LI WENLI,
YAO RUI
Publication year - 2007
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2007.00071.x
Subject(s) - consumption (sociology) , house price , economics , welfare , asset (computer security) , investment (military) , labour economics , monetary economics , market economy , social science , computer security , sociology , politics , computer science , law , political science
We develop a life‐cycle model that explicitly incorporates the dual feature of housing as both a consumption good and an investment asset. Our analysis indicates that the consumption and welfare consequences of house price changes on individual households vary significantly. In particular, the non‐housing consumption of young and old homeowners is much more sensitive to house price changes than that of middle‐aged homeowners. More importantly, while house price appreciation increases the net worth and consumption of all homeowners, it only improves the welfare of old homeowners. Renters and young homeowners are worse off due to higher lifetime housing consumption costs.