Housing assets and consumer spending - a regional-analysis

This paper is concerned with the relationship between the housing market and consumer spending for the eleven standard regions of the UK. Pooled regional cross-sectional and annual time-series data are used to appraise the effect of housing assets on regional consumer spending in the 1980s. A fixed effects estimator imposing common slope coefficients across the regions is employed, and this assumption is tested using the SURE estimator. Estimates of a DHSY specification of the consumption function and a model augmented with housing assets are compared. The fixed effects models perform quite well indicating that the growth in regional housing equity has had a positive impact on regional consumer spending. The SURE results indicate that the assumption of common regional responses of consumer spending to the explanatory variables is not valid, and that the housing wealth effect is strongest in the East Midlands and the South East regions, although they should be treated with caution due to the short time span of the regional data.