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Notes on collateral constraints in a simple model of housing

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Author Info
Andreas Hornstein

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Abstract

These notes provide the derivations of results stated without proof in Hornstein (2009). For a simple model of the demand for housing, it is shown that on a balanced growth path, the rate at which the relative price of housing changes over time is determined by the relative productivity growth rates of the housing sector and the rest of the economy. The model is then modified to include a collateral constrained consumer. We show that collateral constraints may affect the level of the housing price path, but they do not affect the growth rate of housing prices.

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Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 09-03.

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Date of creation: 2009
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Handle: RePEc:fip:fedrwp:09-03

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Related research
Keywords: Housing - Prices;

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  1. Andreas Hornstein, 2009. "Problems for a fundamental theory of house prices," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 1-24. [Downloadable!]
  2. Morris A. Davis & Jonathan Heathcote, 2005. "Housing And The Business Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 751-784, 08. [Downloadable!] (restricted)
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This page was last updated on 2009-11-20.

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