Consumption and Housing Wealth: A Malaysian Case that Demonstrates a Negative Relationship.

Fluctuations in house values over recent years (2000 – 2012,) have led to an economic policy debate on the effects of housing wealth on determining household consumption behaviour. This paper investigates the strength of housing wealth and its effects on consumption using time series data in Malaysia and the cointegration test, Vector Error Correction Model (VECM), and Granger Causality. There is a mounting amount of literature as well that reveals a strong relationship between housing wealth and consumption, and our paper consistently finds that the price variation in the Malaysia housing market is associated with consumer spending, but in a different manner when compared with most of the existing literature. House wealth which is represented by housing price was found to be affecting consumption negatively in the long-run due to both financial regulation and consumers’ perception.