Investigating the impact of housing price increases on consumption: heterogeneity by age, tenure and housing quality

This study draws from two micro cross-sectional datasets, the English Housing Survey (EHS) and the Living Costs and Food Survey (LCFS) to study the Marginal Propensity to Consume (MPC) out of changes in house prices. It employs pseudo-panel regressions to examine the impact of house price changes on consumption among diverse household types. The purpose of this paper is to understand the distributional impact of house price increases on consumption in the context of the energy transition. This paper finds varying consumption responses to house price shifts across age and tenure groups. Older homeowners in less energy-efficient properties tend to increase consumption when house prices rise. In contrast, middle-aged individuals, often renters or mortgage holders, reduce consumption in response to price increases. The youngest age group also experiences increased consumption, but to a lesser degree than the oldest group. The main limitations stem from data constraints. Using a pseudo-panel approach limits our ability to control for unobservable selection bias. Additionally, while accurate, the energy efficiency variable imputation results in a low number of energy-efficient homes. Due to heterogeneous responses to rising house prices, this paper contends that an energy transition model that subsidises homeowners' renovation is likely to produce a negative impact on consumption among younger and middle-aged households. This paper contributes to the MPC literature by incorporating energy efficiency as a key variable. It utilizes recent data and divergent estimates, contributing to a well-established approach and highlighting recent shifts in consumption patterns