Residential Construction and Credit Market Imperfection

Using the asset market equilibrium approach, the effects of Financial Regulations, Reform, Recovery, and Enforcement Act (1989), of the new housing selling time, and of the commercial paper–Treasury Bill spread, through the credit markets, on total and speculative single-family housing construction are investigated. A new speculative single-family housing starts series is developed for this analysis. The credit-market factors appear to affect both the cost of construction loans and the price elasticity of single-family housing construction. These effects are especially strong on speculative housing construction.