The role of housing wealth in explaining consumption remains controversial. This paper emphasizes credit liberalization and wealth in explaining consumption behavior in South Africa, 1971 to 2005. Results support a collateral interpretation of housing wealth affecting consumption as against a life‐cycle interpretation. Liquid and illiquid wealth time series data previously constructed by the authors from household balance sheets are used. Credit conditions are proxied by a spline function entering jointly estimated consumption, debt and income expectations equations in a “latent interactive variable equation system” (LIVES). Empirical results corroborate the theory in the paper: consumption relative to income is driven by credit liberalization and its interactions with other drivers of consumption and debt, by uncertainty, income expectations, and by fluctuations in a range of asset values and in asset accumulation. The results illuminate the monetary policy transmission mechanism in South Africa.