Boom in, Bust Out: Young Households and the Housing Price Cycle

10 Pages Posted: 2 Nov 1998  

François Ortalo-Magné

Wisconsin School of Business; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Sven Rady

University of Bonn

Date Written: September 1998

Abstract

The UK experienced a major residential real estate boom-bust cycle from the mid-Eighties to the mid-Nineties, 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 Eighties was crucial for the unparalleled increase in the owner occupancy rate of young households during the boom.

JEL Classification: E32, G12, G21, R21

Suggested Citation

Ortalo-Magne, Francois and Rady, Sven, Boom in, Bust Out: Young Households and the Housing Price Cycle (September 1998). Available at SSRN: https://ssrn.com/abstract=137961 or http://dx.doi.org/10.2139/ssrn.137961

Francois Ortalo-Magne

Wisconsin School of Business ( email )

4300 Grainger Hall
975 University Avenue
Madison, WI 53706-1323
United States
608-262-7867 (Phone)
608-262-7867 (Fax)

HOME PAGE: http://francois.marginalq.com

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Sven Rady (Contact Author)

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

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