Symposium 'Home Size, Residential Density, and Aggregate Demand'

The paper documents that households in larger homes and lower-density neighbourhoods spend more out of income and accumulate less wealth, conditional on income, wealth, demographics, and local land values.

Drawing on restricted-access PSID data, Prof Murphy shows that the relationship holds within metropolitan areas, among renters and homeowners, and even among households that do not move; it also appears following plausibly exogenous job-related moves, with no evidence of pre-trends.

He develops a parsimonious model with housing–nonhousing complementarity and utility from saving that rationalises these facts and implies that lower per-capita housing depresses equilibrium real interest rates and weakens monetary transmission.