This paper utilizes quarterly panel data for 20 OECD countries over the period 1975:Q1–2014:Q2 to explore the importance of house prices and credit in affecting the likelihood of a financial crisis. Estimating a set of multivariate logit models, we find that booms in credit to both households and non-financial enterprises are important to account for when evaluating the stability of the financial system. In addition, we find that global housing market developments have predictive power for domestic financial stability. Finally, econometric measures of bubble-like behavior in housing and credit markets enter with positive and highly significant coefficients. Specifically, we find that the probability of a crisis increases markedly when bubble-like behavior in house prices coincides with high household leverage.
This paper considers the distributional effects and the transitional dynamics following a change in the property tax rate. To this end, I employ a life-cycle model calibrated to the U.S. economy, where asset holdings and labor productivity vary across households, and tax reforms lead to changes in house and rental prices, wages, and interest rates. I find that the optimal property tax is considerably higher than today for a planner who cares about aggregate efficiency or utilitarian welfare. However, the preferred tax rate varies significantly across households, both in the short and long run. Time-varying policies with higher property taxes in the long run may be politically feasible.
This paper studies how down-payment requirements for house purchases affect households’ saving and housing decisions, and the implications for macroeconomic policy. Using a quantitative model of the U.S. economy, we find that households not only postpone homeownership when the down-payment constraint is higher, but they also delay when they start saving for the house. We show analytically that this result holds under standard assumptions for households’ earnings and preferences. The changes to saving and portfolio choices affect the distribution of liquidity-constrained households, which in turn impacts aggregate responses to policy. Specifically, the cash-flow channel of monetary policy is reduced, and it becomes increasingly important to direct fiscal transfers at low-income households to achieve the largest consumption response. We also find that a stricter down-payment requirement is associated with substantial welfare losses, especially for high-income households.