Housing Bubbles, Economic Growth, and Institutions

Joshua Aizenman, Yothin Jinjarak, Huanhuan Zheng

Research output: Contribution to journalArticlepeer-review

9 Scopus citations


Rising housing prices are accompanied by higher household consumption and firm investment that boost economic growth. However, excessive house price appreciations may distort capital allocation efficiency, for example by crowding out investments in productive sectors, which reduce long-term economic growth. Moreover, house price bubbles are typically unsustainable. Once a housing bubble bursts, credit conditions will tighten due to falling collateral value, leading to a fall in household consumption and employment that cause an economic downturn. Meanwhile, the correction of housing prices may improve investment efficiency and trigger structural reform that subsequently enhances economic growth. We look into the trade-off between the aforementioned effects at different stages of housing cycles and economic growth. Using a quarterly dataset that covers cross-country house prices over four decades, we find that house price appreciations are positively associated with economic growth, while the relationship between house price depreciations and economic growth is highly non-linear, depending on country-specific characteristics. In the absence of confounding crisis in the financial sector, short-lived large house price depreciations, rather than prolonged and modest ones, are positively associated with economic growth. The association between house price depreciations and economic growth is subject to legal systems, mortgage insurance, and personal bankruptcy law.

Original languageEnglish
Pages (from-to)655-674
Number of pages20
JournalOpen Economies Review
Issue number4
StatePublished - 1 Sep 2019
Externally publishedYes


  • Banking crisis
  • Economic growth
  • House prices

ASJC Scopus subject areas

  • Economics and Econometrics


Dive into the research topics of 'Housing Bubbles, Economic Growth, and Institutions'. Together they form a unique fingerprint.

Cite this