Working Paper: CEPR ID: DP7953
Authors: Nobuhiro Kiyotaki; Alexander Michaelides; Kalin Nikolov
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.
Keywords: collateral constraints; housing prices; land; life cycle; real estate
JEL Codes: E20; G10; R20; R30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Housing prices (R31) | Consumption patterns (D10) |
| Housing prices (R31) | Wealth distribution (D31) |
| Land supply (R31) | Housing prices (R31) |
| Expected productivity growth (O49) | Housing prices (R31) |
| World interest rates (E43) | Housing prices (R31) |
| Financing constraints (G32) | Housing prices (R31) |
| Housing prices (R31) | Aggregate consumption (E20) |
| Net buyers (D16) | Wealth redistribution (D31) |
| Wealth redistribution (D31) | Net sellers (D16) |