Does Partisan Conflict in Congress Affect the U.S. Housing Market?

Abstract

This study investigates the impact of partisan conflict in the U.S. housing market using a structural Factor-Augmented Vector AutoRegression (FAVAR) model. Our findings indicate that a positive shock in partisan conflict leads to a negative response in new housing starts and a positive response to house prices. Furthermore, we find that there is substantial variation of these responses across U.S. states, a fact which can be attributed to intrastate differences in homeownership rates and demand elasticities. Our findings have important policy implications, especially in the current period which is characterized by rising interest rates, political polarization, and a downturn in the U.S. real estate market.

Keywords: Politics, Uncertainty, Housing market, FAVAR

JEL Classification: F62, B26, E44, G38