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Supply Restrictions, Subprime Lending and Regional US Housing Prices

  • Anundsen, André Kallåk

    ()

    (Dept. of Economics, University of Oslo)

  • Heebøll, Christian

    ()

    (Department of Economics, University of Copenhagen)

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File URL: https://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2013/memo-04-2013.pdf
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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
Web page: http://www.oekonomi.uio.no/indexe.html
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