Structural Demand Estimation with Borrowing Constraints

Amine Ouazad () and Romain Ranciere

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Abstract: Structural models of housing or product choice use observed demand to estimate household preferences. However, household demand may be partly determined by borrowing constraints, limiting households' choice set. Such borrowing constraints will differ across locations, households, and years. We put forward a model of neighborhood choice with borrowing constraints that accounts for mortgage credit approval rates. We estimate the model's parameters using micro-level data on households, property transactions and mortgage applications for the San Francisco Bay. Approval rates vary significantly both across households and across neighborhoods. The model with borrowing constraints yields significantly higher estimated willingness to pay to live close to good schools and in majority-white neighborhoods. The model provides general equilibrium estimates of the impact of a relaxation of lending standards. Between 2000 and 2006, the model provides two out-of-sample predictions: (i) a compression of the price distribution and (ii) a decline in black households' exposure to white households. Both predictions are supported by empirical observation.

Keywords: household; preference (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-ure
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01207997v1
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Citations: View citations in EconPapers (1)

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Working Paper: Structural Demand Estimation with Borrowing Constraints (2015)
Working Paper: Structural Demand Estimation with Borrowing Constraints (2015)
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