Boom In, Bust Out: Young Households and the Housing Price Cycle

Francois Ortalo-Magne () and Sven Rady ()

Finance from EconWPA

Abstract: The UK experienced a major residential real estate boom-bust cycle from the mid-Eighties to the mid-Nineties, accompanied by unprecedented shifts in the owner occupancy rate of young households. Previous empirical analyses have pointed toward income changes and financial deregulation as the likely causes of this episode, with little to say about the differential effects on various age groups. We show that, in a life-cycle model with income heterogeneity and credit constraints, the observed co-movements of housing prices and owner occupancy rates can be explained as an equilibrium response to income and credit market shocks. Our findings suggest that the financial liberalisation of the early Eighties was crucial for the unparalleled increase in the owner occupancy rate of young households during the boom.

Keywords: Housing Demand; Income Fluctuations; Overlapping Generations; Collateral Constraint (search for similar items in EconPapers)
JEL-codes: E32 G12 G21 R21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Date: 1998-10-22, Revised 1998-10-29
Note: Type of Document - Acrobat PDF; prepared on PC; pages: 10 ; figures: included. Prepared for Session B1, "Theories of Money, Credit and Aggregate Economic Activity" (organized by Nobuhiro Kiyotaki, London School of Economics), at the 13th Annual Congress of the European Economic Association, Berlin, September 1998.

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Related works:
Working Paper: Boom In, Bust Out: Young Households and the Housing Price Cycle (1998)
Journal Article: Boom in, bust out: Young households and the housing price cycle (1999)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:9810004

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