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The Effects of a Targeted Financial Constraint on the Housing Market
[Lending implications of U.S. bank stress tests: Costs or benefits?]

Author

Listed:
  • Lu Han
  • Chandler Lutz
  • Benjamin Sand
  • Derek Stacey
  • Stijn Van Nieuwerburgh
Abstract
We study how financial constraints affect the housing market by exploiting a regulatory change that increases the down payment requirement for homes selling for 1M or more. Using Toronto data, we find that the policy causes excess bunching of homes listed at 1M and heightened bidding intensity for these homes, but only a muted response in sales. While difficult to reconcile in a frictionless market, these findings are consistent with the implications derived from an equilibrium search model with auctions and financial constraints. Our analysis points to the importance of designing macroprudential policies that recognize the strategic responses of market participants.

Suggested Citation

  • Lu Han & Chandler Lutz & Benjamin Sand & Derek Stacey & Stijn Van Nieuwerburgh, 2021. "The Effects of a Targeted Financial Constraint on the Housing Market [Lending implications of U.S. bank stress tests: Costs or benefits?]," The Review of Financial Studies, Society for Financial Studies, vol. 34(8), pages 3742-3788.
  • Handle: RePEc:oup:rfinst:v:34:y:2021:i:8:p:3742-3788.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhab047
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    Citations

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    Cited by:

    1. William N Goetzmann & Christophe Spaenjers & Stijn Van Nieuwerburgh, 2021. "Real and Private-Value Assets [Gendered prices]," The Review of Financial Studies, Society for Financial Studies, vol. 34(8), pages 3497-3526.
    2. Antonia Díaz & Belén Jerez & Juan Pablo Rincón-Zapatero, 2024. "Housing Prices and Credit Constraints in Competitive Search," The Economic Journal, Royal Economic Society, vol. 134(657), pages 220-270.
    3. repec:cte:werepe:35536 is not listed on IDEAS
    4. Jason Allen & Kyra Carmichael & Robert Clark & Shaoteng Li & Nicolas Vincent, 2024. "Housing Affordability and Parental Income Support," Staff Working Papers 24-28, Bank of Canada.
    5. Sonia Gilbukh & Andrew Haughwout & Rebecca J. Landau & Joseph Tracy, 2023. "The price‐to‐rent ratio: A macroprudential application," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 51(2), pages 503-532, March.

    More about this item

    JEL classification:

    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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