This paper investigates how house prices affect household consumption using UK micro data. It finds that house price changes have a large positive effect on consumption for older homeowners, but little or no effect for younger renters. This suggests that the wealth effect of house prices varies across different groups of households. The study also finds that regional house prices affect regional consumption growth, and that predictable changes in house prices are correlated with predictable changes in consumption, particularly for households that are more likely to be borrowing constrained. The results suggest that UK house prices are correlated with aggregate financial market conditions. The paper uses household-level data from the UK Family Expenditure Survey (FES) to estimate the response of consumption to house prices. The FES is a continuous survey of households, in which each household is interviewed only once. The paper uses this data to construct panel data from a time-series of cross-sections, or a pseudo-panel. The use of household-level data allows the authors to estimate the response of consumption to house prices in the region where the household lives, and to control for changes in household income, the degree of household leverage, and household demographics. The paper finds considerable heterogeneity in the response of household consumption to house prices. More precisely, it estimates a large positive effect of house prices on consumption for the cohort of old homeowners, and an effect that is close to zero for the cohort of young renters. These are the cohorts of households who are most likely to be long and short in housing, respectively. The estimated house price elasticity of consumption is as large as 1.7 for the old homeowners group, controlling for interest rates, household income, and other demographic variables. The paper also finds that consumption responds to predictable changes in house prices, an effect which is consistent with an increase in house prices relaxing borrowing constraints, but that may also be explained by a precautionary savings motive or by myopic household behavior. The effect appears to be weaker among homeowners with positive home equity, who have unused borrowing capacity. However, since predictable changes in aggregate and not regional house prices matter, and since the consumption of renters also responds to predictable house price changes, the paper concludes that house prices are related to borrowing constraints or precautionary savings at the aggregate rather than the household or regional level.This paper investigates how house prices affect household consumption using UK micro data. It finds that house price changes have a large positive effect on consumption for older homeowners, but little or no effect for younger renters. This suggests that the wealth effect of house prices varies across different groups of households. The study also finds that regional house prices affect regional consumption growth, and that predictable changes in house prices are correlated with predictable changes in consumption, particularly for households that are more likely to be borrowing constrained. The results suggest that UK house prices are correlated with aggregate financial market conditions. The paper uses household-level data from the UK Family Expenditure Survey (FES) to estimate the response of consumption to house prices. The FES is a continuous survey of households, in which each household is interviewed only once. The paper uses this data to construct panel data from a time-series of cross-sections, or a pseudo-panel. The use of household-level data allows the authors to estimate the response of consumption to house prices in the region where the household lives, and to control for changes in household income, the degree of household leverage, and household demographics. The paper finds considerable heterogeneity in the response of household consumption to house prices. More precisely, it estimates a large positive effect of house prices on consumption for the cohort of old homeowners, and an effect that is close to zero for the cohort of young renters. These are the cohorts of households who are most likely to be long and short in housing, respectively. The estimated house price elasticity of consumption is as large as 1.7 for the old homeowners group, controlling for interest rates, household income, and other demographic variables. The paper also finds that consumption responds to predictable changes in house prices, an effect which is consistent with an increase in house prices relaxing borrowing constraints, but that may also be explained by a precautionary savings motive or by myopic household behavior. The effect appears to be weaker among homeowners with positive home equity, who have unused borrowing capacity. However, since predictable changes in aggregate and not regional house prices matter, and since the consumption of renters also responds to predictable house price changes, the paper concludes that house prices are related to borrowing constraints or precautionary savings at the aggregate rather than the household or regional level.