Housing Wealth and Household Consumption: The Case of Homeowners in Korea

This study examines the impact of changes in housing wealth on household consumption among homeowners in Korea, using panel data from the Korean Labor and Income Panel Study (KLIPS) for the period 2004–2023. Previous studies in Korea using household-level panel data have relied on either self-reported house values, which are prone to measurement error, or local-level house price indices, which may not fully capture the heterogeneity of individual properties. To address potential biases arising from measurement error or aggregation, we construct an instrumental variable (IV) for changes in housing wealth, which we use in our estimation. Our IV estimates reveal that changes in housing wealth have a significant positive effect on the total consumption of homeowners, and this effect also holds for nondurable consumption. Further analysis shows that the consumption of homeowners with debt responds to changes in housing wealth, whereas homeowners without debt do not adjust their consumption. This suggests that the collateral channel plays an important role in shaping the consumption decisions of homeowners in Korea.