Housing, Distribution and Welfare

Housing is a long-lived asset whose value is sensitive to variations in long-term growth and interest rates. When a large fraction of the population is leveraged, housing price fluctuations cause large-scale redistribution and consumption volatility. We find that a practical way to insure the young and the poor from the housing cycle is through a well-functioning rental market. In practice, home-ownership subsidies keep the rental market small and the housing cycle affects aggregate consumption. Removing home-ownership subsidies hurts older home-owners, while leverage limits hurt younger home-owners.

Keywords: Housing prices, credit constraints, distribution, rental markets, welfare.

JEL Classification: D15, D58, E02, E21

Suggested Citation: Suggested Citation

Kiyotaki, Nobuhiro and Michaelides, Alexander and Nikolov, Kalin, Housing, Distribution and Welfare (April 4, 2023). Journal of Money, Credit and Banking, forthcoming, Available at SSRN: https://ssrn.com/abstract=3584351 or http://dx.doi.org/10.2139/ssrn.3584351