Household borrowing and spending rise with house prices, particularly for leveraged households, but household spending is not consumption. We propose an alternative borrow-to-invest channel by which house price gains aﬀect household spending on residential investment. We show that rational, leveraged households have an incentive to make additional residential investments when house prices rise. Our empirical compares responses in diﬀerent kinds of spending across more and less leveraged households. We ﬁnd strong evidence of the borrow-to-invest channel in UK data. Credit constraints matter through reducing access to leveraged returns and so reducing lifetime resources, rather than through consumption smoothing.
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