DP7953 Winners and Losers in Housing Markets

Author(s): Nobuhiro Kiyotaki, Alexander Michaelides, Kalin Nikolov
Publication Date: August 2010
Keyword(s): Collateral constraints., Housing Prices, Land, Life cycle, Real estate
JEL(s): E20, G10, R20, R30
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7953

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.