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Housing Market Dynamics and the GFC: The Complex Dynamics of a Credit Shock

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  • Arthur Grimes

    ()
    (Motu Economic and Public Policy Research and the University of Auckland)

  • Sean Hyland

    ()
    (Motu Economic and Public Policy Research)

Abstract

We analyse the multiple channels of influence that GFC-induced credit restrictions had on New Zealand’s subnational housing markets. Our model isolates dynamics caused by impacts on the supply and the demand sides of the market. These dynamics are compared to those caused by a migration shock, a more common form of housing shock in New Zealand. We focus on the impacts on two outcome variables: house prices and housing supply; both shocks cause substantial cyclical adjustments in each variable. Similar cyclical dynamics could complicate the conduct of macro-prudential policies which are designed to affect bank credit allocation.

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Bibliographic Info

Paper provided by Motu Economic and Public Policy Research in its series Working Papers with number 13_12.

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Length: 39 pages
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:mtu:wpaper:13_12

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Keywords: House prices; housing supply; credit restrictions; GFC; migration;

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References

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  1. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2006. "Why Has House Price Dispersion Gone Up?," NBER Working Papers 12538, National Bureau of Economic Research, Inc.
  2. Pain, Nigel & Westaway, Peter, 1997. "Modelling structural change in the UK housing market: A comparison of alternative house price models," Economic Modelling, Elsevier, vol. 14(4), pages 587-610, October.
  3. Arthur Grimes & Andrew Aitken, 2007. "House Prices and Rents: Socio-Economic Impacts and Prospects," Working Papers 07_01, Motu Economic and Public Policy Research.
  4. Edward L. Glaeser & Joseph Gyourko & Albert Saiz, 2008. "Housing Supply and Housing Bubbles," NBER Working Papers 14193, National Bureau of Economic Research, Inc.
  5. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  6. Iris Claus & Arthur Grimes, 2003. "Asymmetric Information, Financial Intermediation and the Monetary Transmission Mechanism: A Critical Review," Treasury Working Paper Series 03/19, New Zealand Treasury.
  7. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, MIT Press, vol. 125(3), pages 1253-1296, August.
  8. Edward L. Glaeser & Joseph Gyourko, 2006. "Housing Dynamics," NBER Working Papers 12787, National Bureau of Economic Research, Inc.
  9. Arthur Grimes & Andrew Aitken, 2010. "Housing Supply, Land Costs and Price Adjustment," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 38(2), pages 325-353.
  10. Oded Palmon & Baron A. Smith, 1998. "New Evidence on Property Tax Capitalization," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 1099-1128, October.
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