Supply Restrictions, Subprime Lending and Regional US Housing Prices

Andre Anundsen (andre-kallak.anundsen@oslomet.no) and Christian Heebøll (chc@econ.ku.dk)
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Christian Heebøll: Department of Economics, University of Copenhagen, Postal: Øster Farimagsgade 5, Building 26, DK-1353, Copenhagen , Denmark

No 04/2013, Memorandum from Oslo University, Department of Economics

Abstract: This paper analyzes the recent boom-bust cycle in the US housing market from a regional perspective. Particular attention is paid to supply side restrictions and financial accelerator effects related to subprime lending. Considering 248 Metropolitan Statistical Areas across the entire US, we estimate a simultaneous boom-bust system for housing prices and supply. The model includes non-linear regional specific supply elasticities, determined by geographical and regulatory supply restrictions. In contrast to the predictions of a supply-demand framework, our results suggest that tighter supply restrictions lead to both a larger housing price boom and bust following a temporary increase in subprime lending. Extending the model to include a financial accelerator, our results indicate that supply restricted areas are significantly more exposed to this mechanism, which explains the greater housing price volatility in these areas over the course of a boom-bust cycle.

Keywords: Regional Boom-Bust Cycles; Housing Supply Restrictions; Subprime Lending; Financial Accelerator (search for similar items in EconPapers)
JEL-codes: E32 E44 G21 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2013-01-25
New Economics Papers: this item is included in nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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