Structural Demand Estimation with Borrowing Constraints

Rancière, Romain and Amine Ouazad ()
Authors registered in the RePEc Author Service: Romain Rancière

No 10866, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Structural models of housing or product choice use observed demand to estimate household preferences. However, household demand may be partly determined by borrowing constraints, limiting households? choice set. Such borrowing constraints will differ across locations, households, and years. We put forward a model of neighborhood choice with borrowing constraints that accounts for mortgage credit approval rates. We estimate the model's parameters using micro-level data on households, property transactions and mortgage applications for the San Francisco Bay. Approval rates vary significantly both across households and across neighborhoods. The model with borrowing constraints yields significantly higher estimated willingness to pay to live close to good schools and in majority-white neighborhoods. The model provides general equilibrium estimates of the impact of a relaxation of lending standards. Between 2000 and 2006, the model provides two out-of-sample predictions: (i)Â a compression of the price distribution and (ii)Â a decline in black households' exposure to white households. Both predictions are supported by empirical observation.

Keywords: Demand estimation; House prices; Housing; Mortgage credit; Segregation (search for similar items in EconPapers)
JEL-codes: G21 R21 R23 (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-dcm, nep-dge and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Structural Demand Estimation with Borrowing Constraints (2015)
Working Paper: Structural Demand Estimation with Borrowing Constraints (2015)
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