The Effects of a Targeted Financial Constraint on the Housing Market

Lending implications of U.S. bank stress tests: Costs or benefits?

Lu Han, Chandler Lutz, Benjamin Sand (), Derek Stacey and Stijn Van Nieuwerburgh

The Review of Financial Studies, 2021, vol. 34, issue 8, 3742-3788

Abstract: We study how financial constraints affect the housing market by exploiting a regulatory change that increases the down payment requirement for homes selling for 1M or more. Using Toronto data, we find that the policy causes excess bunching of homes listed at 1M and heightened bidding intensity for these homes, but only a muted response in sales. While difficult to reconcile in a frictionless market, these findings are consistent with the implications derived from an equilibrium search model with auctions and financial constraints. Our analysis points to the importance of designing macroprudential policies that recognize the strategic responses of market participants.

JEL-codes: C14 D44 D83 G28 R38 R51 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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