Supply Restrictions, Subprime Lending and Regional US House Prices

41 Pages Posted: 20 Mar 2015

See all articles by André K. Anundsen

André K. Anundsen

Norges Bank; University of Oslo

Christian Heebøll

University of Copenhagen

Multiple version iconThere are 2 versions of this paper

Date Written: March 19, 2015

Abstract

With regard to the recent US house price cycle, we analyze how the interaction between housing supply restrictions, mortgage credit constraints and a price-to-price feedback loop affects house price volatility. Considering 247 Metropolitan Statistical Areas, we estimate a simultaneous boom-bust system for house prices, housing supply and subprime lending. The model accounts for regional differences in supply elasticities that are determined by local variations in topographical and regulatory supply restrictions. Our results suggest that tighter supply restrictions lead to both a larger house price boom and bust, and that this is due to supply restricted areas being significantly more exposed to a financial accelerator effect and a price-to-price expectation mechanism. We further find that the presence of endogenous price acceleration mechanisms contribute to dilute the positive relationship between the total quantity response and the supply elasticity during a housing boom.

Keywords: regional boom-bust cycles, housing supply restrictions, subprime lending, financial accelerator

JEL Classification: G210, R140, R210, R310

Suggested Citation

Anundsen, Andre Kallak and Anundsen, Andre Kallak and Heebøll, Christian, Supply Restrictions, Subprime Lending and Regional US House Prices (March 19, 2015). CESifo Working Paper Series No. 5236, Available at SSRN: https://ssrn.com/abstract=2580785 or http://dx.doi.org/10.2139/ssrn.2580785

Andre Kallak Anundsen (Contact Author)

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

University of Oslo ( email )

PO Box 6706 St Olavs plass
Oslo, 0130
Norway

Christian Heebøll

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

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