Credit constraints, inelastic supply, and the housing boom

Yongqiang Chu

Review of Economic Dynamics, 2014, vol. 17, issue 1, 52-69

Abstract: In this paper, I develop a dynamic general equilibrium model to study the sensitivity of house price changes with respect to credit constraints. I find that house prices are sensitive to changes of the down payment requirements if owner-occupied houses and rental houses are inelastically supplied. I then use the model to evaluate the housing boom during the 1995-2005 time period. I find that, under the assumption that owner-occupied housing and rental housing cannot be converted to each other, the increase in real household income and the decline in down payment requirements can explain a large fraction of the observed house price and price-rent ratio changes during the 1995-2005 time period. However, the model fails to match the interest rate changes during the 1995-2005 period. (Copyright: Elsevier)

Keywords: Housing boom; Down payment requirements (search for similar items in EconPapers)
JEL-codes: E21 E31 R21 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (31)

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DOI: 10.1016/j.red.2013.06.001

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