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Supply Restrictions, Subprime Lending and Regional US Housing Prices

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  • Anundsen, André Kallåk

    ()
    (Dept. of Economics, University of Oslo)

  • Heebøll, Christian

    ()
    (Department of Economics, University of Copenhagen)

Abstract

This paper analyzes the recent boom-bust cycle in the US housing market from a regional perspective. Particular attention is paid to supply side restrictions and financial accelerator effects related to subprime lending. Considering 248 Metropolitan Statistical Areas across the entire US, we estimate a simultaneous boom-bust system for housing prices and supply. The model includes non-linear regional specific supply elasticities, determined by geographical and regulatory supply restrictions. In contrast to the predictions of a supply-demand framework, our results suggest that tighter supply restrictions lead to both a larger housing price boom and bust following a temporary increase in subprime lending. Extending the model to include a financial accelerator, our results indicate that supply restricted areas are significantly more exposed to this mechanism, which explains the greater housing price volatility in these areas over the course of a boom-bust cycle.

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File URL: https://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2013/memo-04-2013.pdf
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Bibliographic Info

Paper provided by Oslo University, Department of Economics in its series Memorandum with number 04/2013.

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Length: 47 pages
Date of creation: 25 Jan 2013
Date of revision:
Handle: RePEc:hhs:osloec:2013_004

Contact details of provider:
Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
Email:
Web page: http://www.oekonomi.uio.no/indexe.html
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Related research

Keywords: Regional Boom-Bust Cycles; Housing Supply Restrictions; Subprime Lending; Financial Accelerator;

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References

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  1. Huang, Haifang & Tang, Yao, 2012. "Residential land use regulation and the US housing price cycle between 2000 and 2009," Journal of Urban Economics, Elsevier, vol. 71(1), pages 93-99.
  2. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
  3. Coleman IV, Major & LaCour-Little, Michael & Vandell, Kerry D., 2008. "Subprime lending and the housing bubble: Tail wags dog?," Journal of Housing Economics, Elsevier, vol. 17(4), pages 272-290, December.
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  7. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  8. Wendell Cox, 2011. "Constraints on Housing Supply: Natural and Regulatory," Econ Journal Watch, Econ Journal Watch, vol. 8(1), pages 13-27, January.
  9. LaCour-Little, Michael & Calhoun, Charles A. & Yu, Wei, 2011. "What role did piggyback lending play in the housing bubble and mortgage collapse?," Journal of Housing Economics, Elsevier, vol. 20(2), pages 81-100, June.
  10. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
  11. Haifang Huang & Yao Tang, 2011. "Dropping the Geographic-Constraints Variable Makes Only a Minor Difference: Reply to Cox," Econ Journal Watch, Econ Journal Watch, vol. 8(1), pages 28-32, January.
  12. Kosuke Aoki & James Proudman & Gertjan Vlieghe, 2002. "House prices, consumption, and monetary policy: a financial accelerator approach," Bank of England working papers 169, Bank of England.
  13. Meen, Geoffrey P, 1990. "The Removal of Mortgage Market Constraints and the Implications for Econometric Modelling of UK House Prices," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(1), pages 1-23, February.
  14. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, MIT Press, vol. 125(3), pages 1253-1296, August.
  15. Cohen, Jeffrey P. & Coughlin, Cletus C. & Lopez, David A., 2012. "The boom and bust of U.S. housing prices from various geographic perspectives," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 341-368.
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