Abstract
This paper tests whether disregarding home improvements biases the housing wealth effect, that is, the marginal propensity to consume out of housing wealth. We decompose housing wealth changes in their unanticipated and exogenous component by filtering out previously elicited expectations of house prices and by dealing with endogenous home improvements. Results show that the bias is zero due to the zero correlation between home investments and changes in house values. Results are consistent with models with exogenous maintenance and with the evidence that maintenance contrasts depreciation and is mostly value-preserving. A comparative empirical approach excludes that results are only internally valid.
Original language | English |
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Pages (from-to) | 1532-1547 |
Number of pages | 16 |
Journal | Real Estate Economics |
Volume | 50 |
Issue number | 6 |
Early online date | 9 Apr 2022 |
DOIs | |
Publication status | Published - Nov 2022 |
Bibliographical note
Publisher Copyright:© 2022 The Authors. Real Estate Economics published by Wiley Periodicals LLC on behalf of American Real Estate and Urban Economics Association.
Keywords
- expectations
- home improvements
- housing wealth effect
- maintenance
- renovations