The Fall in the Savings Ratio: the Role of Housing

The Housing Market and Consumer Spending

“…Our econometric analysis follows closely that of Hendry and von Ungern-Sternberg (HUS) (1981), who adopted such an approach to adjust measured income to take account of inflation effects on liquid asset holdings. Therefore, our approach complements the work of Lee and Robinson (1990) and Muellbauer and Murphy (1989).…”

“…Our basic contention, therefore, is that the housing market operates in such a way as to allow households additional freedom in their choice of income level. During periods of housing market boom, households may adjust their income upwards by moving house and withdrawing equity, in the manner suggested by Lee and Robinson (1990), for spending purposes. Furthermore, movers tend to capitalise moving costs (stamp duty, legal fees, selling costs) by equity withdrawal.…”

“…However, its coefficient was statistically insignificant, confirming our hypothesis concerning the cyclical asymmetry of the HEW effect. ' Turnover will be endogenous in an analysis of the housing market and consumer spending; see Lee and Robinson (1990). I?…”

“…Two distinguishing features of their approach are (i) the way price and interest rate effects and credit constraints are integrated into a general empirical model of consumer spending behaviour and (ii) the encompassing implications of their preferred empirical model. Lee and Robinson (1990) have studied the impact of the housing market on savings, without pursuing a fully developed empirical model of aggregate consumer spending. They emphasise the phenomenon of equity withdrawal arising from the way house purchases are financedroughly stated as the difference between lending for house purchase and actual investment in new housing.…”

Change in income distribution and aggregate spending: constraints on full-employment?

“…In contrast to Cume et al, most recent work has attempted to incorporate an equity withdrawal (rather than a capital gain) variable. This has been done because Lee and Robinson (1990) pointed out that the opportunities for equity withdrawal went hand in hand with housing turnover, and that the volume of housing sales and purchases matched the chronology of the consumption boom very closely. Following along this line, Carruth and Henley (1990) produced an income series that wac adjusted to include the benefits from equity withdrawal.…”