House prices, (un)affordability and systemic risk

Efthymios Pavlidis, Ivan Paya () and Alexandros Skouralis

New Zealand Economic Papers, 2021, vol. 55, issue 1, 105-123

Abstract: This is the first paper to examine the role of the real estate sector and housing unaffordability in the determination of systemic risk. We measure the systemic risk of the UK by employing the $\Delta {\rm CoVaR} $ΔCoVaR method developed by Adrian and Brunnermeier [(2016). CoVaR. American Economic Review, 106(7), 1705–1741] and we explore both its cross-sectional and time series behaviour. Regarding the former, we show that when the real estate sector is under distress the tail risk of the entire financial system increases significantly. With respect to the latter, the findings of our dynamic model suggest that sustainable house prices positively contribute to the stability of the financial sector; whilst house price exuberance and rapid increases in housing unaffordability amplify systemic risk. Finally, we examine the conjecture that the banking sector comprises a transmission channel from the housing market to systemic risk. Our empirical results are in line with this argument and highlight the key role of housing unaffordability.

Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/00779954.2020.1718185 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: House Prices, (Un)Affordability and Systemic Risk (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:nzecpp:v:55:y:2021:i:1:p:105-123

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RNZP20

DOI: 10.1080/00779954.2020.1718185

Access Statistics for this article

New Zealand Economic Papers is currently edited by Dennis Wesselbaum

More articles in New Zealand Economic Papers from Taylor & Francis Journals
Bibliographic data for series maintained by ().