Housing, Distribution and Welfare

82 Pages Posted: 20 May 2020 Last revised: 17 Oct 2020

See all articles by Nobuhiro Kiyotaki

Nobuhiro Kiyotaki

Princeton University - Department of Economics

Alexander Michaelides

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Kalin Nikolov

European Central Bank (ECB)

Date Written: October 16, 2020


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 examine policies to mitigate the impact of housing fluctuations on vulnerable households. We find that the most 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

Kiyotaki, Nobuhiro and Michaelides, Alexander and Nikolov, Kalin, Housing, Distribution and Welfare (October 16, 2020). Available at SSRN: https://ssrn.com/abstract=3584351 or http://dx.doi.org/10.2139/ssrn.3584351

Nobuhiro Kiyotaki

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Alexander Michaelides (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

United Kingdom

Kalin Nikolov

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

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