IDEAS home Printed from https://ideas.repec.org/p/fda/fdaddt/2010-09.html
   My bibliography  Save this paper

The Role of Construction in the Housing Boom and Bust in Spain

Author

Listed:
  • Carlos Garriga

Abstract

This paper describes a quantitative model developed to account for the change in the level of house prices (boom-and-bust cycle) in Spain. The driving forces behind the housing boom are residential investment, immigration, current account deficits, and the elimination of land regulation. The model emphasizes the interaction of housing supply (determined by the existing stock of residential investment and new construction) with market demand. A calibrated version of the model for the Spanish economy replicates the key aggregate of the economy in 1995. The model predicts that a change in observed fundamentals can rationalize at least 84 percent of the recent boom in the value of housing capital. The model suggests that without large current account deficits and demographic changes the housing boom could have been much smaller. With respect to the housing bust, the model suggests that the combination of increasing mortgage rates, unemployment, and low productivity can have large effects in the value of housing capital. Some conservative predictions quantify adjustments that range between 24 and 29 percent.

Suggested Citation

  • Carlos Garriga, 2010. "The Role of Construction in the Housing Boom and Bust in Spain," Working Papers 2010-09, FEDEA.
  • Handle: RePEc:fda:fdaddt:2010-09
    as

    Download full text from publisher

    File URL: http://documentos.fedea.net/pubs/dt/2010/dt-2010-09.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Libertad Gonzalez & Francesc Ortega, 2013. "Immigration And Housing Booms: Evidence From Spain," Journal of Regional Science, Wiley Blackwell, vol. 53(1), pages 37-59, February.
    2. Rosen, Harvey S & Rosen, Kenneth T, 1980. "Federal Taxes and Homeownership: Evidence from Time Series," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 59-75, February.
    3. Gervais, Martin, 2002. "Housing taxation and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1461-1489, October.
    4. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2011. "Winners and Losers in Housing Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 255-296, March.
    5. Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2009. "Accounting For Changes In The Homeownership Rate," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 677-726, August.
    6. Richard K. Green & Stephen Malpezzi & Stephen K. Mayo, 2005. "Metropolitan-Specific Estimates of the Price Elasticity of Supply of Housing, and Their Sources," American Economic Review, American Economic Association, vol. 95(2), pages 334-339, May.
    7. Davis, Morris A. & Heathcote, Jonathan, 2007. "The price and quantity of residential land in the United States," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2595-2620, November.
    8. Miguel-Angel Lopez-Garcia, 2004. "Housing, prices and tax policy in Spain," Spanish Economic Review, Springer;Spanish Economic Association, vol. 6(1), pages 29-52, April.
    9. Robert F. Martin, 2005. "The baby boom: predictability in house prices and interest rates," International Finance Discussion Papers 847, Board of Governors of the Federal Reserve System (U.S.).
    10. Mankiw, N. Gregory & Weil, David N., 1989. "The baby boom, the baby bust, and the housing market," Regional Science and Urban Economics, Elsevier, vol. 19(2), pages 235-258, May.
    11. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2010. "Why Has House Price Dispersion Gone Up?," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1567-1606.
    12. Chambers, Matthew & Garriga, Carlos & Schlagenhauf, Don E., 2009. "Housing policy and the progressivity of income taxation," Journal of Monetary Economics, Elsevier, vol. 56(8), pages 1116-1134, November.
    13. Berkovec, James & Fullerton, Don, 1992. "A General Equilibrium Model of Housing, Taxes, and Portfolio Choice," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 390-429, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Garriga, Carlos & Tang, Yang & Wang, Ping, 2014. "Rural-Urban Migration, Structural Transformation, and Housing Markets in China," Working Papers 2014-28, Federal Reserve Bank of St. Louis, revised 21 Apr 2016.
    2. Pablo Agnese & Pablo Salvador, 2012. "More alike than different: the Spanish and Irish labour markets before and after the crisis," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 1(1), pages 1-24, December.
    3. Andrea ÉLTETÕ, 2011. "The economic crisis and its management in Spain," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 2, pages 41-55, June.
    4. Yang Tang & Ping Wang & Carlos Garriga, 2014. "Rural-Urban Migration, Structural Change, and Housing Markets in China," 2014 Meeting Papers 765, Society for Economic Dynamics.
    5. Agnese, Pablo & Hromcová, Jana, 2015. "Bubble Economics and Structural Change: The Cases of Spain and France Compared," IZA Discussion Papers 8942, Institute for the Study of Labor (IZA).
    6. Viktor Dorofeenko & Gabriel S. Lee & Kevin D. Salyer, 2011. "Rationale Erklärungen für Immobilienpreis‐Bubbles: Die Auswirkungen von Risikoschocks auf die Wohnimmobilienpreisvolatilität und die Volatilität von Investitionen in Wohnimmobilien," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 12(2), pages 151-169, May.
    7. repec:spr:series:v:8:y:2017:i:4:d:10.1007_s13209-017-0166-9 is not listed on IDEAS
    8. repec:eee:jhouse:v:36:y:2017:i:c:p:44-61 is not listed on IDEAS
    9. Giancarlo Corsetti & Michael P. Devereux & John Hassler & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2011. "Chapter 4: Spain," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 127-145, February.
    10. Claire Lebarz, 2015. "Income Inequality and Household Debt Distribution: A Cross-Country Analysis using Wealth Surveys," LWS Working papers 20, LIS Cross-National Data Center in Luxembourg.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fda:fdaddt:2010-09. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carmen Arias). General contact details of provider: http://www.fedea.net .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.