Housing markets and the global financial crisis: the complex dynamics of a credit shock

We analyze the multiple channels of influence that global financial crisis-induced credit restrictions had on New Zealand's subnational housing markets. The dynamics caused by the credit shock are compared to those caused by a migration shock, a more common form of housing shock in New Zealand. We focus on the impacts on two outcome variables, house prices and housing supply, within a structural time series model of regional housing markets. Both shocks cause substantial and prolonged cyclical adjustments in each variable. Similar cyclical dynamics could complicate the conduct of macroprudential policies designed to affect bank credit allocation. (JEL E32, E44, R21)
I. INTRODUCTION Housing markets around the world were affected significantly by the global financial crisis (GFC). Real house prices in New Zealand fell by 15.3% between 2007Q2 and 2011Q2. In [...]