Stuck at Home: Housing Demand During the COVID-19 Pandemic (with William Gamber and Anirudh Yadav)

Conditionally Accepted at Journal of Housing Economics

The COVID-19 pandemic induced a significant increase in both the amount of time that households spend at home and the share of expenditures allocated to at-home consumption. These changes coincided with a period of rapidly rising house prices. We interpret these facts as the result of stay-at-home shocks that increase demand for goods consumed at home as well as the homes that those goods are consumed in. We first test the hypothesis empirically using US cross-county panel data and instrumental variables regressions. We find that counties where households spent more time at home experienced faster increases in house prices. We then study various pandemic shocks using a heterogeneous agent model with general equilibrium in housing markets. Stay-at-home shocks explain around half of the increase in model house prices in 2020, with lower mortgage interest rates explaining around one third, and unemployment shocks and fiscal stimulus accounting for the remainder. We find that young households and first-time home buyers account for much of the increase in underlying housing demand during the pandemic, but they are largely crowded out of the housing market by the equilibrium rise in house prices.

House Prices and Consumption: A New Instrumental Variables Approach with Christos A. Makridis

Online Appendix, Replication Files

Forthcoming at American Economic Journal: Macroeconomics

Awarded the A. R. Bergstrom Prize in Econometrics in 2019

Fluctuations in house prices can generate large movements in household expenditure. However, empirical work exploring this relationship must deal with the endogeneity problems associated with using house prices as a regressor. A popular instrumental variables strategy exploits cross-sectional variation in house prices as predicted by the local housing supply elasticities of Saiz (2010). As an alternative, I introduce a Bartik instrument for house prices that consists of the interaction between the pre-existing local supply of housing characteristics and broad changes in the relative demand for those characteristics. I show that the instrument is a strong predictor of house price growth in both the cross-section and through time. I then use household panel data on non-durable expenditures to estimate the elasticity of consumption with respect to local house price growth. I report precise estimates in the range of 0.10 to 0.15, which correspond to marginal propensities to consume out of housing wealth of 1.2 to 1.8 cents in the dollar. These estimates are robust to controls for aggregate fluctuations, local business cycles, and local industry and demographic composition. In contrast, I show that the traditional housing supply elasticity instrument produces inconsistent estimates when confronted with these same controls. Thus, the Bartik instrument succeeds in generating plausibly exogenous variation in house prices when housing supply elasticity instruments may fail. When decomposing variation in the Bartik instrument, I find that the identified consumption response to house prices is largely driven by times and locations where house prices varied the most: during the 2008 recession and in the Western US.

Book Review: "Boom and Bust: A Global History of Financial Bubbles" (2022)

Economic Record

Public Education Inequality and Intergenerational Mobility (2022) with Angela Zheng

Online Appendix, Replication Files

American Economic Journal: Macroeconomics

Public school funding depends heavily on local property tax revenue. Consequently, low-income households have limited access to quality education in neighborhoods with high house prices. In a dynamic life-cycle model with neighborhood choice and endogenous local school quality, we show that this property tax funding mechanism reduces intergenerational mobility and accounts for the spatial correlation between house prices and mobility. A housing voucher experiment improves access to schools, with benefits that can last for multiple generations. Additionally, a policy that redistributes property tax revenues equally across schools improves mobility and welfare. However, the benefits can take generations to be realized.

Age, Industry, and Unemployment Risk During a Pandemic Lockdown (2021), with Murat Ozbilgin

Journal of Economic Dynamics and Control 

Media: stuff.co.nz

This paper models the macroeconomic and distributional consequences of lockdown shocks during the COVID-19 pandemic. The model features heterogeneous life-cycle households, labor market search and matching frictions, and multiple industries of employment. We calibrate the model to data from New Zealand, where the health effects of the pandemic were especially mild. In this context, we model lockdowns as supply shocks, ignoring the demand shocks associated with health concerns about the virus. We then study the impact of a large-scale wage subsidy scheme implemented during the lockdown. The policy prevents job losses equivalent to 6.5% of steady state employment. Moreover, we find significant heterogeneity in its impact. The subsidy saves 17.2% of jobs for workers under the age of 30, but just 2.6% of jobs for those over 50. Nevertheless, our welfare analysis of fiscal alternatives shows that the young prefer increases in unemployment transfers as this enables greater consumption smoothing across employment states.


Work in Progress

House Prices, Monetary Policy, and Commodities: Evidence from Australia (with Alistair Read)

Revise and Resubmit at Economic Record

Monetary policy and commodity prices are key drivers of Australian house prices, but endogeneity between these variables complicates empirical research. To address this, we use local projection methods and instrumental variables for estimation. We find that one standard deviation expansionary monetary and commodity shocks increase house prices at peak by 1.5 percent and 1.4 percent, respectively. Using geographically disaggregated panel data, we exploit the heterogeneity in house price responses to study the different channels through which these shocks affect housing markets. We find that both monetary policy and commodity price shocks have significant effects on housing markets through income channels.

Consumption Behavior Across the Distribution of Liquid Assets (with Robert A. McDowall)

We study consumption responses to predictable income using transaction-level data from a U.S. financial institution. We find that consumption responses are front-loaded to income receipt, decline moderately with liquidity, but are significant even for households with substantial liquid assets. To rationalize these facts, we develop a model of mental accounts in which consumption choices are partitioned across current income and current assets. Our calibration suggests households are moderately averse to dissaving out of assets, which generates the timing and distribution of consumption responses observed in the data. Finally, we explore implications of the model for the design of fiscal policy.


House Prices, Investors, and Credit in the Great Housing Bust (Job Market Paper)

I study the role of investors in stabilizing housing markets during the Great Housing Bust. Using transaction-level housing data, I distinguish between two types of investors that were active during this period: large corporate investors and small household investors. I estimate that following a mortgage credit contraction, house prices fell by 30 percent more in markets where household investors absorbed larger shares of house purchases. To rationalize this result, I build a heterogeneous agent model of the housing market featuring both types of investors. I show that equilibrium house prices fall sharply following a mortgage credit contraction when household investors are required to absorb falling housing demand. In contrast to corporate investors, household investors are sensitive to changing credit conditions and the illiquidity of housing assets. Prices must fall to generate sufficiently large returns to compensate previously indebted homeowners for the increase in borrowing required to invest in additional housing.

Public Education and the Intergenerational Wealth Effects of House Price Changes (with Mike Gilraine and Angela Zheng)

Tax Cuts for the Wealthy, Mortgages for the Poor, and the Makings of a Housing Crisis for All (with Christopher Gibbs)