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Supply Restrictions, Subprime Lending and Regional US House Prices

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  • André Kallåk Anundsen
  • Christian Heebøll

Abstract

With regard to the recent US house price cycle, we analyze how the interaction between housing supply restrictions, mortgage credit constraints and a price-to-price feedback loop affects house price volatility. Considering 247 Metropolitan Statistical Areas, we estimate a simultaneous boom-bust system for house prices, housing supply and subprime lending. The model accounts for regional differences in supply elasticities that are determined by local variations in topographical and regulatory supply restrictions. Our results suggest that tighter supply restrictions lead to both a larger house price boom and bust, and that this is due to supply restricted areas being significantly more exposed to a financial accelerator effect and a price-to-price expectation mechanism. We further find that the presence of endogenous price ac-celeration mechanisms contribute to dilute the positive relationship between the total quantity response and the supply elasticity during a housing boom.

Suggested Citation

  • André Kallåk Anundsen & Christian Heebøll, 2015. "Supply Restrictions, Subprime Lending and Regional US House Prices," CESifo Working Paper Series 5236, CESifo.
    • Handle: RePEc:ces:ceswps:_5236
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    Cited by:

    1. Knut Are Aastveit & Bruno Albuquerque & André K. Anundsen, 2023. "Changing Supply Elasticities and Regional Housing Booms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(7), pages 1749-1783, October.
    2. Egan, Paul & McQuinn, Kieran, 2023. "Regime switching and the responsiveness of prices to supply: The case of the Irish housing market," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 82-94.
    3. Knut Are Aastveit & André K. Anundsen, 2022. "Asymmetric Effects of Monetary Policy in Regional Housing Markets," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(4), pages 499-529, October.
    4. Brausewetter, Lars & Thomsen, Stephan L. & Trunzer, Johannes, 2022. "Explaining regional disparities in housing prices across German districts," IWH Discussion Papers 13/2022, Halle Institute for Economic Research (IWH).
    5. Knut Are Aastveit & Bruno Albuquerque & André K. Anundsen, 2023. "Changing Supply Elasticities and Regional Housing Booms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(7), pages 1749-1783, October.
    6. Anundsen, André Kallåk & Heebøll, Christian, 2016. "Supply restrictions, subprime lending and regional US house prices," Journal of Housing Economics, Elsevier, vol. 31(C), pages 54-72.
    7. Ms. Nan Geng, 2018. "Fundamental Drivers of House Prices in Advanced Economies," IMF Working Papers 2018/164, International Monetary Fund.
    8. Shengguo Li & Jiaqi Liu & Jichang Dong & Xuerong Li, 2021. "20 Years of Research on Real Estate Bubbles, Risk and Exuberance: A Bibliometric Analysis," Sustainability, MDPI, vol. 13(17), pages 1-24, August.
    9. Bahar Öztürk & Dorinth van Dijk & Frank van Hoenselaar & Sander Burgers, 2018. "The relation between supply constraints and house price dynamics in the Netherlands," DNB Working Papers 601, Netherlands Central Bank, Research Department.

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    More about this item

    Keywords

    regional boom-bust cycles; housing supply restrictions; subprime lending; financial accelerator;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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