Scandinavian Working Papers in Economics
Memorandum,
Oslo University, Department of Economics
No 04/2013: Supply Restrictions, Subprime Lending and Regional US Housing Prices
André Kallåk Anundsen () and Christian Heebøll ()
Additional contact information
André Kallåk Anundsen: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Christian Heebøll: Department of Economics, University of Copenhagen, Postal: Øster Farimagsgade 5, Building 26, DK-1353, Copenhagen , Denmark
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.
Keywords: Regional Boom-Bust Cycles; Housing Supply Restrictions; Subprime Lending; Financial Accelerator
47 pages, January 25, 2013
Full text files
memo-04-2013.pdf
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