House price and household consumption micro-data approach

This paper investigates the relationship between house prices and consumption by using the HILDA (Household, Income and Labour Dynamics in Australia) survey over the period of 2003 to 2012. We find young households have the largest changes in consumption in response to changes in house prices. We also find renters (homeowners) have negative (positive) changes in consumption in response to changes in house prices. Under the permanent income hypothesis and the life-cycle model frameworks, these two main findings suggest that the co-movement between house prices and household consumption in Australia may be mainly explained by the credit constraint channel.