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Housing

Lightning Round Session

Monday, Jan. 5, 2026 10:15 AM - 12:15 PM (EST)

Philadelphia Convention Center, 304
Hosted By: American Economic Association
  • Chair: Allison Shertzer, Federal Reserve Bank of Philadelphia

Fiscal Stimulus Payments, Housing Demand, and House Price Inflation

Leming Lin
,
University of Pittsburgh

Abstract

During the COVID-19 pandemic, the U.S. housing market experienced an unprecedented boom, with house prices climbing at record rates despite widespread economic disruptions. This paper investigates whether the fiscal stimulus transfers—specifically the Economic Impact Payments (EIPs) and expanded Child Tax Credit (CTC) payments totaling over $900 billion—contributed to the surge in housing demand and house prices. These payments were substantial relative to household savings and typical down payments, potentially alleviating liquidity constraints faced by marginal homebuyers.

Using cross-sectional variation across metropolitan statistical areas (MSAs) and counties, I find a strong positive correlation between the average amount of stimulus payments received and house price growth from 2019 to 2021. This relationship persists after controlling for changes in non-transfer income, population size and density, population growth or migration, exposure to the shift to remote work, pre-2020 per capita income or house price levels, or differential housing trends, and is present both across MSAs within the same states and across counties within the same MSAs. Additional analyses, including a regression kink design leveraging income-based eligibility thresholds, suggest a causal relationship between stimulus payments and increased homeownership rates. Mortgage data further indicate that housing transactions grew significantly faster in areas with greater stimulus payments, supporting the notion that these transfers relaxed borrowing constraints and stimulated housing demand.

The findings suggest that the pandemic stimulus programs contributed to the recent surge in house prices and inflation and highlight an important housing channel through which fiscal stimulus impacts the economy.

Missing Home-Buyers and Rent Inflation: the Role of Interest Rates and Mortgage Underwriting Standards

Alessia De Stefani
,
International Monetary Fund

Abstract

Applying a regression discontinuity design and non-parametric methods to propertylevel
data from the American housing survey, I show that the steep increase in mortgage
rates between 2021 and 2023 pushed a large amount of renters above FHA mortgage
payment-to-income limits, thereby delaying their move into home-ownership.
As these households remain in the rental market, local demand pressures intensify
while vacancies decline, contributing to rent price inflation in 2023. Exploiting geographical
variation in the shares of constrained first-time buyers, I show that larger
shares correspond to steeper rent price increases, holding constant unit and occupant
characteristics as well city-level varying economic conditions. Rent price growth is
greater for units occupied by relatively poorer renters, underscoring the potential for
second-round distributional effects of monetary policy.

Upzoning and Neighborhood Change: Evidence from Los Angeles

Idil Tanrisever
,
University of California-Irvine

Abstract

Housing affordability is a pressing challenge in the United States, with rising costs placing significant financial strain on communities. In response, local governments are exploring policies to enhance residential development and increase housing supply. A common strategy is upzoning, which involves relaxing land use regulations to facilitate denser housing. Using property characteristics and consumer trace data, I show that easing zoning requirements increases housing supply, as measured by the number of units, without altering the average square footage per unit, while increasing property prices. The zoning change also triggers demographic shifts, including an increase in the number of households in census blocks, alongside a rise in in-migrants and a smaller, less consistent increase in out-migrants. Notably, a larger share of in-migrant households are non-Hispanic White, while I find no differential patterns by race or ethnicity among out-migrant households. In-migrants do not originate from higher-income tracts, whereas out-migrants relocate to areas with slightly higher median household incomes. Additionally, I analyze spillover effects within a 2-mile radius of the treated zones, revealing delayed increases in housing units and households near the Transit Oriented Communities (TOC) areas. These findings are robust to a triple difference-in-differences specification, confirming that the observed changes are attributable to the TOC program rather than confounding factors.

Local Housing and Mortgage Markets Newspaper Sentiment

Inbar Bahat
,
Bank of Israel
Jonathan Benchimol
,
Bank of Israel

Abstract

This study examines the dynamic relationship between newspaper sentiment and housing prices using a comprehensive panel dataset spanning 33 U.S. metropolitan areas from 2000-2022. We construct novel city-specific sentiment measures through textual analysis of 687,112 news articles, differentiating between housing and mortgage-specific content at both the article and sentence levels. Employing financial stability-focused lexicons and multiple sentiment extraction methodologies, we implement panel vector autoregression models with appropriate identification strategies to disentangle sentiment transmission mechanisms.

Our results reveal three empirical regularities: First, mortgage-related sentiment exhibits stronger and more persistent associations with house prices than general housing sentiment—a one standard deviation increase in mortgage sentiment over three quarters corresponds to a 1.5% increase in house price standard deviation, compared to 1% for housing sentiment. Second, decomposing sentiment effects reveals that topic frequency carries a negative relationship with prices, while tone and the frequency-tone interaction demonstrate positive associations. Third, the sentiment-price relationship exhibits significant heterogeneity conditional on supply elasticity, with supply-constrained markets showing systematically stronger sentiment transmission, consistent with theoretical predictions.

The results remain robust across alternative dictionaries, sentiment construction methodologies, and econometric specifications. These findings contribute to the narrative economics literature by providing causal evidence on how media content relates to asset price dynamics across varying macroeconomic conditions, including the Global Financial Crisis and the COVID-19 pandemic. The differential impact of mortgage-specific sentiment suggests important implications for macroprudential policy, particularly regarding the monitoring of specialized financial narratives as potential early indicators of housing market vulnerability.

Housing Deposit Channel of Monetary Policy and Housing Price Double-Dip

Hamed Ghiaie
,
ESCP Business School
Philipp Roderweis
,
University Sorbonne Paris Nord, CEPN-CNRS

Abstract

“Rising interest rates lead to a gradual decline in housing prices.”, a widely held belief; this paper challenges that conventional wisdom both theoretically and empirically by showing that sustained monetary tightening activates a novel transmission mechanism, i.e., the housing deposit channel, which gives rise to a double-dip in housing prices: an initial decline upon impact, followed by a temporary rebound, and a subsequent second dip in the longer run. A general equilibrium model formalizes the theory behind this mechanism, and empirically, lag-augmented local projection estimation techniques, supported by extensive robustness checks, demonstrate that the patterns observed in the US data align with the theoretical model’s predictions. Our study investigates the effects of monetary policy on the housing market and reciprocally, how the housing market influences the efficacy of monetary policy, particularly in achieving inflation targeting objectives.

The Impact of Opportunity Zones on Housing Supply

Benjamin Glasner
,
Economic Innovation Group
Adam Ozimek
,
Economic Innovation Group

Abstract

The United States suffers from a severe and persistent shortfall in housing. The Opportunity Zones (OZs) tax incentive is one of the most recent federal efforts to catalyze private investment in housing construction, with a specific focus on designated low-income communities. Using modern difference-in-differences methods, we estimate the causal effect of OZ designation on the local stock of active and vacant residential addresses, drawing on data from the U.S. Department of Housing and Urban Development's (HUD) Aggregated United States Postal Service (USPS) Administrative Data on Address Vacancies. We find that OZ designation caused a large and sustained increase in housing supply in designated low-income communities. We estimate that the incentive resulted in more than 416{,}000 new active and vacant residential addresses through Q1~2025, increasing the rate of growth in new housing within designated OZ tracts by 69.8 percent. The average effect per designated tract was 47.5 active or vacant addresses. These net new addresses largely reflect genuinely new development rather than a reallocation of investment activity from nearby non-designated areas. Our findings demonstrate that place-based capital-gains tax incentives can effectively stimulate private investment in local housing supply and help address persistent underinvestment in low-income communities.

U.S. Regulatory Delays in Construction Across Time

Sam Nak-Kyu Barnett
,
Princeton University

Abstract

Existing measures of the stringency of U.S. land use regulations are snapshots in time. To study the relationship between administrative barriers and housing affordability, I use permit-level data to construct a novel dataset of average annual delays for new residential construction permits in more than 100 U.S. cities, covering over 20 years. Average delays correlate positively and significantly with house prices across cities. Using a local projection specification with city fixed effects, a one-month increase in delays (approximately a standard deviation) is estimated to increase house prices two years later by about $25,000. Delays are negatively correlated with the electoral vote share of city council members, both in the cross section and dynamically, and relate closely with subindices of the 2018 Wharton Regulatory Land Use Survey Initiative (WRLURI). The above results are significant at the 0.05 level.

The Impact of the 2018 Kīlauea Eruption on Real Estate Prices

Sadichchha Shrestha
,
University of Hawaii-Manoa

Abstract

Volcanic eruptions are highly destructive, causing widespread damage to communities, infrastructure, and the environment. Beyond fatalities and injuries, they lead to displacement, loss of livelihoods, and heightened public health risks. This paper examines the impact of the 2018 Kilauea eruption from May to August 2018 on real estate prices of Hawaii’s Big Island. This was the largest eruption in at least 200 years, affecting nearly 1,700 parcels and resulting in an estimated economic loss of close to USD 1 billion.
Exploiting this event as a natural experiment and employing a difference-in-differences approach, I estimate the causal impact of volcanic hazards on property values. The findings indicate that properties directly exposed to lava experienced a relative decline in prices compared to unaffected areas. To the best my knowledge, this is the first study to establish a causal link between volcanic hazards and real estate prices.
This research is particularly important for three reasons. First, real estate and rental and leasing contribute significantly to Hawaii’s GDP, and the state has the fourth-highest homelessness rate per capita, making the housing market especially vulnerable. Second, Hawaii is home to four of the world’s most active volcanoes, all on the Big Island. Third, existing studies on natural disasters, such as floods and hurricanes, often focus on short-term price rebounds, but the irreversible nature of volcanic lava’s destruction solidifying into barren rock and making the land uninhabitable, leads to unique, permanent market shocks.

Overreaction in House Price Expectations

Samir Huseynov
,
Auburn University

Abstract

House prices play an important role in economic boom and bust cycles. However, little is known about the behavioral foundations of house price expectations. Using behavioral models, we investigate the cognitive factors behind the formation and revision process of house price expectations. We conduct a series of online studies, using the market uncertainty regarding the Fed’s policy rate decisions. We design treatments with optimistic and pessimistic macroeconomic predictions. Homeowners overreact to these information treatments relative to the Bayesian benchmark. They also exhibit asymmetric and optimistic belief revisions, suggesting that motivated reasoning can drive house price expectations. Property value and past house price growth history
also influence the price expectation updating process. We observe significant price expectation shifts in the follow-up study, indicating that homeowners actively monitor the macroeconomic outlook. Our paper highlights the importance of mapping the micro-foundations of house price expectations on the verge of monetary policy changes.

The Equilibrium Impacts of Broker Incentives in the Real Estate Market

Gi Heung Kim
,
Boston College

Abstract

Commission rates for housing transactions are twice as high in the United States than in other countries. Policymakers have raised concerns that the practice of sellers offering buyers’ brokers commissions can lead to high commissions and harm consumers. This paper empirically examines the equilibrium impacts of a proposed policy called “decoupling,” which would require buyers and sellers to each pay their respective brokers. I develop a structural model integrating buyers, sellers, and brokers to characterize the equilibrium house prices, com- missions, and to assess the welfare impacts of the policy. I estimate the model with rich observed heterogeneity and credible sources of identifying variation using shifters of house prices and commissions. I find that decoupling reduces commissions paid by 53%, as sellers no longer have to offer high commissions to attract buyers, and brokers compete for price-sensitive buyers. Sellers and buyers experience a surplus gain of 4% of the total transaction value from hav- ing higher net proceeds than the status quo. I find notable surplus gains for buyers across income groups as sellers pass through part of their commission savings to house prices.
JEL Classifications
  • R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location