The Life‐Cycle Effects of House Price Changes

TLDR

The study develops a life‑cycle model that treats housing as both a consumption good and an investment asset. The model explicitly incorporates housing’s dual role as consumption and investment within the life‑cycle framework. House‑price changes alter households’ welfare unevenly: appreciation raises net worth and consumption for all, yet only older homeowners enjoy welfare gains, while young homeowners and renters face higher lifetime housing costs that reduce their non‑housing consumption.

Abstract

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.