Credit Supply and the Price of Housing

We show that since 1994, branching deregulations in the U.S have signi…cantly af-fected the supply of mortgage credit, and ultimately house prices. With deregulation,the number and volume of originated mortgage loans increase, while denial rates fall.But the deregulation has no effect on a placebo sample, formed of independent mort-gage companies that should not be affected by the regulatory change. This sharpensthe causal interpretation of our results. Deregulation boosts the supply of mortgagecredit, which has signi…cant end e¤ects on house prices. Interestingly, the fraction ofsecuritized mortgage loans remains unchanged through the process. We …nd evidencehouse prices rise with branching deregulation, particularly so in Metropolitan Areaswhere construction is inelastic for topographic reasons. We document these results ina large sample of counties across the U.S. We also focus on a reduced cross-sectionformed by counties on each side of a state border, where a regression discontinuityapproach is possible. Our conclusions are strengthened.[...]