Discussion Paper Details

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Title: Winners and Losers in Housing Markets

Author(s): Nobuhiro Kiyotaki, Alexander Michaelides and Kalin Nikolov

Publication Date: August 2010

Keyword(s): Collateral constraints., Housing Prices, Land, Life cycle and Real estate

Programme Area(s): International Macroeconomics

Abstract: This paper is a quantitatively-oriented theoretical study into the interaction between housing prices, aggregate production, and household behavior over a lifetime. We develop a life-cycle model of a production economy in which land and capital are used to build residential and commercial real estates. We find that, in an economy where the share of land in the value of real estates is large, housing prices react more to an exogenous change in expected productivity or the world interest rate, causing a large redistribution between net buyers and net sellers of houses. Changing financing constraints, however, has limited effects on housing prices.

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Bibliographic Reference

Kiyotaki, N, Michaelides, A and Nikolov, K. 2010. 'Winners and Losers in Housing Markets'. London, Centre for Economic Policy Research.