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Conference Paper BHPS-2009 Conference: the 2009 British Household Panel Survey Research Conference, 9-11 July 2009, Colchester, UK

Subjective well-being and house prices


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Research on the determinants of well-being is proliferate yet very little attention has
been paid to whether and why house prices influence well-being. Using subjective
measures of well-being as a proxy of utility, we advance three competing hypotheses as
to why well-being and house prices might be linked. A wealth channel would suggest
that owners of housing assets become wealthier as house prices rise, which may lead to
changes in consumption and leisure choices and subsequently well-being. While
homeowners experience better outcomes as house prices rise the opposite is expected
for prospective homeowners. A relative wealth channel would suggest that
homeowners experience better well-being outcomes as their relative circumstances
improve where as prospective homeowners experience a deterioration in well-being as
their relative circumstances worsen. A common factor channel would suggest that
house prices simply proxy for unobserved factors that drive consumption or well-being
directly. We test these hypotheses empirically using the British Household Panel
Survey (BHPS) between 1991-2005 to which we match house price data from cities
and towns. The evidence is consistent with a common factor channel forging a link
between well-being and house prices.


Well Being and Housing Market



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