Home Construction Financing and Search Frictions in the Housing Market
Miroslav Gabrovski () and
Victor Ortego-Marti ()
No 202217, Working Papers from University of California at Riverside, Department of Economics
This paper studies the effects of financial frictions in construction on housing market dynamics. To this end, we build a search-theoretic model of the housing market in which there is endogenous entry of buyers and developers face credit constraints. Our model explores a novel channel that links credit frictions faced by developers to the housing market: developers must search for financing before building a home Ã la Wasmer and Weil (2004). We calibrate the model to quantify the size of the credit channel during the 2012â€“2019 housing market recovery. Through a series of counterfactuals, our model predicts that the credit channel had a large impact on housing liquidity, construction, and the vacancy rate. Furthermore, it accounts for around half of the rise in prices during the 2012-2019 housing market recovery.
Keywords: Housing market; Search and matching; Endogenous separations; Bev- eridge Curve; Housing liquidity (search for similar items in EconPapers)
JEL-codes: E2 E32 R21 R31 (search for similar items in EconPapers)
Pages: 30 Pages
New Economics Papers: this item is included in nep-dge and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:202217
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