masthead.gif (15542 bytes)

Volume 31, Number 3, 2009

Housing Investment and the U.S. Economy: How Have the Relationships Changed?

William Miles
Wichita State University
Dept. of Economics
1845 Fairmount
Wichita, KS 67260-0078


Previous research has found that housing investment has a disproportionate role in the U.S. business cycle. This paper demonstrates that the relationship between housing and the rest of the economy has changed since financial deregulation and innovation in the early1980s. In particular, residential investment increases both consumption, as well as non-residential investment palpably more than in years past. Additionally, in the pre-deregulation years, non-residential investment appeared to crowd out housing activity. However, the results indicate that this effect is smaller in the present era than before the early 1980s, in all likelihood due to the switch from thrift-based financing of home mortgages to the current system in which secondary mortgage markets play a predominant role.

down1.gif (981 bytes)