Housing Prices and Real Investment: Collateral vs. Crowding-Out Effects

50 Pages Posted: 3 Sep 2021 Last revised: 21 Sep 2021

See all articles by Deeksha Gupta

Deeksha Gupta

Johns Hopkins University

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department ; National Bureau of Economic Research (NBER)

Date Written: September 1, 2021

Abstract

There is active debate about whether high real estate prices benefit or hurt investment. In this paper, we propose a theoretical framework to evaluate policies that target real estate prices and investment. Our model incorporates two documented empirical effects that real estate prices can have on investment --- a collateral channel and a crowding-out channel. Optimal policy depends on the relative magnitude of these two effects and requires opposing interventions in demand and supply, i.e. subsidizing one while taxing the other. The distribution of collateral, rather than its aggregate level, determines the net effect of real estate prices on surplus.

Keywords: Collateral, crowding-out, investment, housing taxes and subsidies

JEL Classification: D25, E22, G11, H21, R21, R31, R38

Suggested Citation

Gupta, Deeksha and Goldstein, Itay, Housing Prices and Real Investment: Collateral vs. Crowding-Out Effects (September 1, 2021). Available at SSRN: https://ssrn.com/abstract=3915660 or http://dx.doi.org/10.2139/ssrn.3915660

Deeksha Gupta (Contact Author)

Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-746-0499 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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