Housing Wealth Isn’t Wealth Willem H. Buiter, 2008 Presentation by Aleksey M. Martynyuk.
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Transcript of Housing Wealth Isn’t Wealth Willem H. Buiter, 2008 Presentation by Aleksey M. Martynyuk.
![Page 1: Housing Wealth Isn’t Wealth Willem H. Buiter, 2008 Presentation by Aleksey M. Martynyuk.](https://reader035.fdocuments.in/reader035/viewer/2022062712/56649c715503460f94922c0c/html5/thumbnails/1.jpg)
Housing Wealth Isn’t WealthWillem H. Buiter, 2008
Presentation by Aleksey M. Martynyuk
![Page 2: Housing Wealth Isn’t Wealth Willem H. Buiter, 2008 Presentation by Aleksey M. Martynyuk.](https://reader035.fdocuments.in/reader035/viewer/2022062712/56649c715503460f94922c0c/html5/thumbnails/2.jpg)
Summary
• Background• Housing Wealth –
Life-cycle Hypothesis• Paper’s Summary• Related Findings• Conclusion
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![Page 4: Housing Wealth Isn’t Wealth Willem H. Buiter, 2008 Presentation by Aleksey M. Martynyuk.](https://reader035.fdocuments.in/reader035/viewer/2022062712/56649c715503460f94922c0c/html5/thumbnails/4.jpg)
![Page 5: Housing Wealth Isn’t Wealth Willem H. Buiter, 2008 Presentation by Aleksey M. Martynyuk.](https://reader035.fdocuments.in/reader035/viewer/2022062712/56649c715503460f94922c0c/html5/thumbnails/5.jpg)
Life-Cycle Hypothesis
• Households smooth out fluctuations in current income
• Changes in wealth are built into consumption plans; unanticipated changes lead to a revision of those plans
![Page 6: Housing Wealth Isn’t Wealth Willem H. Buiter, 2008 Presentation by Aleksey M. Martynyuk.](https://reader035.fdocuments.in/reader035/viewer/2022062712/56649c715503460f94922c0c/html5/thumbnails/6.jpg)
Wealth Effects
• Direct Wealth Effects
• Credit Constraint Channel
• Common Cause Channel
![Page 7: Housing Wealth Isn’t Wealth Willem H. Buiter, 2008 Presentation by Aleksey M. Martynyuk.](https://reader035.fdocuments.in/reader035/viewer/2022062712/56649c715503460f94922c0c/html5/thumbnails/7.jpg)
Wealth Effects
• Direct Wealth Effects– Unanticipated increases in wealth will increase
will lead to an increase in consumption– Housing W vs. Financial W• Housing’s illiquidity
– Financial innovations help
• Income groups distribution• Permanence
– Needs Empirical Backing
![Page 8: Housing Wealth Isn’t Wealth Willem H. Buiter, 2008 Presentation by Aleksey M. Martynyuk.](https://reader035.fdocuments.in/reader035/viewer/2022062712/56649c715503460f94922c0c/html5/thumbnails/8.jpg)
Wealth Effects
• Credit Constraint Channel– MEW - mortgage equity withdrawal
– Limited to credit-constrained households
– Cost of credit
– Effects vary due to the heterogeneity of the agents
![Page 9: Housing Wealth Isn’t Wealth Willem H. Buiter, 2008 Presentation by Aleksey M. Martynyuk.](https://reader035.fdocuments.in/reader035/viewer/2022062712/56649c715503460f94922c0c/html5/thumbnails/9.jpg)
Wealth Effects
• Common Cause Channel– Financial Liberalization– Increase in both secured (collateralized) and
unsecured debt– Consumption increase for all agent
– Real interest rates, productivity shocks, expectations
![Page 10: Housing Wealth Isn’t Wealth Willem H. Buiter, 2008 Presentation by Aleksey M. Martynyuk.](https://reader035.fdocuments.in/reader035/viewer/2022062712/56649c715503460f94922c0c/html5/thumbnails/10.jpg)
Buiter’s position
“In a representative agent model, a decline in house prices does create a negative wealth effect on aggregate consumption demand. On average, consumers are neither worse off nor better off.”
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Buiter’s position
“The fundamental value of a house is the present discounted value of its current and future rentals, actual or imputed.”
![Page 12: Housing Wealth Isn’t Wealth Willem H. Buiter, 2008 Presentation by Aleksey M. Martynyuk.](https://reader035.fdocuments.in/reader035/viewer/2022062712/56649c715503460f94922c0c/html5/thumbnails/12.jpg)
Buiter’s position
• Consumer durable example
• Long housing vs. Short housing
• Landlords vs. Tenants
![Page 13: Housing Wealth Isn’t Wealth Willem H. Buiter, 2008 Presentation by Aleksey M. Martynyuk.](https://reader035.fdocuments.in/reader035/viewer/2022062712/56649c715503460f94922c0c/html5/thumbnails/13.jpg)
Buiter’s proposition #1
• In the representative agent model a change in the fundamental value of a unit of installed housing has no wealth effect on aggregate consumption demand, the demand for housing services or the consumption demand for non-housing goods and services.
![Page 14: Housing Wealth Isn’t Wealth Willem H. Buiter, 2008 Presentation by Aleksey M. Martynyuk.](https://reader035.fdocuments.in/reader035/viewer/2022062712/56649c715503460f94922c0c/html5/thumbnails/14.jpg)
Buiter’s proposition #2
• In the representative agent model a change in the bubble component of the price of a unit of installed housing is associated with a wealth effect on aggregate consumption demand, on the demand for housing services and on the consumption demand for non-housing goods and services.
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Buiter’s proposition #3
• In the OLG model higher fundamental house prices have a positive aggregate wealth effect and a positive effect on aggregate consumption demand, on the demand for housing services and on the consumption demand for non-housing goods and services if the higher fundamental house prices reflect (expected) demand for housing services by future generations.
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Distributional Effects
• Life cycle
• From the unborn to those currently alive
• Age-dependent propensities to consume
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Age-dependent propensities to consume
• Older generation might have a higher propensity to consume
• Younger generation might be liquidity-constrained
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Conclusion
• No change in consumption on aggregate
• Redistribution of wealth between long-housing and short housing
• Pure wealth effect if bubble is present
• Two indirect channels:– Difference in MPC– Credit effects