House price changes, house expenditures and saving – Including maintenance and home improvements in a life cycle model

Previous studies have found evidence for the effect of unexpected house price changes on consumption and saving as predicted by the life cycle model. Furthermore,
strong evidence for an effect on house expenditures has been found. Households increase house expenditures when house prices increase. In this study a life cycle model is developed with house expenditures that connects these two topics. The model predicts that the effect of house price changes on consumption and saving increases with the price level. This predictions are empirically tested using data from the Dutch national bank (DNB) Household Survey (DHS). No evidence in favour of the effect on house expenditures is found using limited data. Evidence in favour of the effect on saving is found.