CONSUMER DURABLES SPENDING AND HOUSING MARKET ACTIVITY
| Author | Andrew Henley,Alan Carruth |
| DOI | http://doi.org/10.1111/j.1467-9485.1992.tb00620.x |
| Published date | 01 August 1992 |
| Date | 01 August 1992 |
Scorrish
Journal
of
Polirid
Econoiiiy.
Vol.
39.
No.
3,
August
1992
1992 Scottkh
Economic
Society
CONSUMER DURABLES SPENDING AND
HOUSING MARKET ACTIVITY
ALAN CARRUTH
AND
ANDREW HENLEY*
Keynes College, University
of
Kent,
Canterbury
INTRODUCTION
Recent experience would suggest that the state
of
the housing market has an
important relationship with consumer durables expenditure. The collapse in
housing turnover in
1989
and
1990
has had serious consequences for the per-
formance
of
the durables retailing sector. The Harris Queensway and Coloroll
collapses,
to
name but two, along with widespread bankruptcy in replacement
windows and fitted kitchens sectors illustrate this. There are
a
number
of
reasons why durables spending might be sensitive to housing market activity.
This paper attempts to shed empirical light on these.
Consumer spending behaviour since
1985
has subjected the existing specifica-
tions that form the basis
of
the consumption functions embedded within the
main UK macroeconomic forecasting models (Davidson
ef
al.
(DHSY),
1978;
Hendry and von Ungern-Sternberg (HUS),
1981)
to
a
serious challenge. This
is
a
challenge that they have not met too successfully, see for instance, Carruth
and Henley
(1990a),
inter aha.
The derivative specifications used by the main
forecasting agencies (Bank
of
England, Treasury,
NIESR,
LBS)
all
seriously
misforecasted consumer spending growth in the period
1985
to
1988.
The
Lawson boom
of
1987/88
was partly predicated on incorrect spending forecasts
provided by the Treasury.
Muellbauer and Murphy
(1989)
have examined
a
number
of
possible expla-
nations for a structural break in the determination
of
personal sector spending
as a whole. These include the following:
a) Increases during the
1980s
in the ratios
of
financial and physical assets
to
income. According to life-cycle and permanent income theories such an
increase should raise the average propensity to consume.
b)
The elimination
of
credit rationing through financial liberalisation in the
early
1980s
led to an increase in ‘fungibility’
of
illiquid assets. There was a
noticeable increase in (price) competition in the mortgage market with the
entry
of
the clearing banks, accompanied by rising lending to income mul-
tiplies. However, the evidence on the liberalisation
of
non-mortgage con-
*
The authors are Reader
in
Economics, and Lecturer in Economics, respectively, at the Uni-
versity
of
Kent at Canterbury. They would
like
to
thank colleagues at the University
of
Kent,
seminar participants at Salford University and the editor and referees
of
the
SJPE
for
com-
ments. The usual disclaimer
applies.
Date
of
receipt
of
final manuscript:
3
October
1991.
26
I
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