Boom in,bust out: Young households and the housing price cycle |
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| Institution: | 1. Maxwell Advisory Board Professor of Economics, Department of Economics and Center for Policy Research, Syracuse University, Syracuse, New York 13244-1020, United States;2. SmartCentres Professor of Real Estate and Urban Economics, Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada;3. Department of Economics and Center for Policy Research, Syracuse University, Syracuse, New York 13244-1020, United States;1. China Center for Economic Research, National School of Development, Peking University, China;2. China Academy of Public Finance and Public Policy, Central University of Finance and Economics, China |
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| Abstract: | The UK experienced a major residential real estate boom–bust cycle from the mid-1980s to the mid-1990s, accompanied by unprecedented shifts in the owner occupancy rate of young households. Previous empirical analyses have pointed toward income changes and financial deregulation as the likely causes of this episode, with little to say about the differential effects on various age groups. We show that, in a life-cycle model with income heterogeneity and credit constraints, the observed co-movements of housing prices and owner occupancy rates can be explained as an equilibrium response to income and credit market shocks. Our findings suggest that the financial liberalisation of the early 1980s was crucial for the unparalleled increase in the owner occupancy rate of young households during the boom. |
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