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COSTS OF HOUSING CRISES: INTERNATIONAL EVIDENCE

Authors


  • The authors are grateful to the editor and two anonymous referees for helpful comments and suggestions. They would like to thank Markus Pape for valuable research assistance and Paul Kramer for carefully proofreading the manuscript.

Correspondence: Jens Boysen-Hogrefe, Hindenburgufer 66, 24105 Kiel, Germany. Tel: +49-431-8814210. Email: jens.hogrefe@ifw-kiel.de.

ABSTRACT

This paper analyses the costs of housing crises in terms of GDP growth and the economic conditions under which crises are particularly costly. Housing crises are often followed by recessions that are longer than other recessions. According to empirical estimates, a housing crisis reduces the GDP growth rate in the following year on average by two percentage points and has still a considerable negative impact in the second year. One important channel through which the effect of housing crises is passed on seems to be the banking sector. In addition, our results suggest that negative wealth effects possibly cause further reductions in GDP growth.

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