Housing regulation and bubbles

Claire Chevallier and Sarah El Joueidi

Journal of Housing Economics, 2025, vol. 67, issue C

Abstract: This paper develops a dynamic general equilibrium model in infinite horizon, in which deterministic rational housing bubbles may emerge. Borrowers are constrained by two macroprudential regulations: DTI and LTV limits. The study investigates whether housing bubbles can arise under these regulatory constraints and identifies the specific conditions for their emergence. Our findings show that: (1) with LTV regulations, the equilibrium may feature a housing bubble; (2) when agents face an LTV regulation, two equilibria may emerge: a bubbleless and a housing bubble equilibria; (3) tighter LTV regulations exacerbate the growth of housing bubbles.

Keywords: Dynamic general equilibrium; Housing bubbles; Infinitely-lived agents; Loan-to-Value (search for similar items in EconPapers)
JEL-codes: E44 E60 G1 G21 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhouse:v:67:y:2025:i:c:s1051137725000051

DOI: 10.1016/j.jhe.2025.102046

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