Workshop: On the Relation between the Dutch Housing Market and Household Consumption

Programme:

13.00 – 13.05 Short introduction (Michiel Bijlsma, Head of Department Competition & Regulation, CPB)

13.05 - 13.20 On the correlation between consumption and house prices in the Netherlands (Bahar Öztürk, DNB)

13.20 - 13.35 Household debt and consumption during the crisis. What can we learn from Dutch data? (Rutger Teulings, CPB)

13.35 – 13.50 Do house prices matter for household consumption? (Lu Zhang, CPB)

13.50 -14.05 On the link between increasing house prices, mortgage debt and consumtion (Christian Lennartz, RaboResearch)

14.15 – 14.30 Q&A

1) On the correlation between consumption and house prices in the Netherlands

Bahar Öztürk, DNB

According to an international comparative analysis, the Netherlands is one of a group of countries with a relatively strong relationship between house prices and private consumption. The strength of this relationship mainly depends on the relative share of homeowners with a mortgage loan. This suggests that institutional differences between mortgage markets (e.g. in the tax treatment of mortgage interest rates) probably play a substantial role in explaining why the relationship between house prices and private consumption is so much stronger in some countries.

2) Household debt and consumption during the crisis. What can we learn from Dutch data?

Kan Ji, Rutger Teulings & Bram Wouterse (all CPB)

We estimate the contemporaneous relationship between household debt and household consumption, both scaled by income, for the period 2006 to 2015. We use a proxy measure of consumption based on administrative data for the whole Dutch population. On the micro level, we find that the average consumption of households with high debt has decreased much sharper during the crisis than that of other households. This drop is strongest for households who used new debt to move to a different address. Before the crisis, these households seem to have used part of their debt to finance one-off high consumption (e.g. durables). After the crisis households' ability or willingness to use debt for this purpose decreased: the number of movers with high debt became smaller, and their consumption level decreased. On the macro level, however, this group plays only a minor role in explaining the drop in consumption because of its relatively limited size. Instead, the number of high indebted home owners who do not move and have negative home equity increases substantially during the crisis. As a result, the more modest drop in consumption on a micro level of this group has a more substantial effect on the macro level. This suggests that precautionary savings (or borrowing constraints) among highly indebted households partly explain the consumption decline during the crisis.

3) Do house prices matter for household consumption?

Lu Zhang (CPB)

To what extent do large swings in house prices drive household consumption? Using a large panel of Dutch households over the period 2007 to 2014, I find a significant positive relationship between house prices and household (durable) consumption. A 10% change in home values leads to a 0.68% change in household consumption for homeowners, but a negligible response for renters. Young and middle-aged homeowners have larger consumption sensitivities to house prices than old households. Delving into the underlying channels, I find strong evidence that house prices affect consumption through the borrowing collateral channel and not the pure wealth effect channel.

4) De link tussen stijgende huizenprijzen, hypotheekschuld en consumptieve bestedingen

Lisan Spiegelaar & Christian Lennartz (Rabobank)

We make use of anonymized micro-data from Rabobank to investigate the link between house price appreciations and private consumption. We show that Dutch home owners with a mortgage consume about 4 cents of each Euro their house appreciates in value in the period from 2014-16. The total mortgage debt does not have an effect on this relation. We do observe regional differences: In provinces with stronger house price appreciations the marginal propensity to consume is higher. Home owners in ‘North-Holland’ consume about 6 cent of each Euro the house gained in value.