This paper reviews the role of house prices in influencing private consumption and residential investment in OECD countries. Deregulation of the mortgage markets in most OECD countries since the 1970s has made it easier for households to borrow for current consumption on the basis of their housing wealth, and the easing of borrowing constraints has often been accompanied by sizeable withdrawal of housing equity. The analysis presented in the paper and a review of existing empirical work for the major OECD countries suggest that house prices have a significant positive impact on private consumption through wealth effects and/or an easing of liquidity constraints. House prices also influence the profitability of house building, and in many countries there is a close association between profitability of house construction and private residential investment. A corollary of these results is that residential property prices can be useful indicators of demand pressures in the economy ...