Housing Equity Withdrawal and Consumption Dynamics in Estonia 2002-2011

Madis Aben, Merike Kukk, Karsten Staehr


The linkages between housing wealth and household consumption are contentious. This paper uses a recently introduced statistical concept, housing equity withdrawal (HEW), to investigate the linkages in the case of Estonia. HEW is defined as net borrowing by the household sector, which is secured on housing equity but not invested in housing assets. HEW is thus a direct measure of the cash flow from housing assets available to the household sector. The HEW series computed for Estonia are much more volatile than similar series in countries such as the UK and the USA. The volatility is related to rapidly changing financing conditions and real estate prices, but also to consumption aspirations. Econometric analysis confirms a close correlation between housing equity withdrawal and consumption, but the relation appears to differ between the boom in 2002-2007 and the downturn period 2008-2011.

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