Advertisement

Journal of Housing and the Built Environment

, Volume 26, Issue 3, pp 263–276 | Cite as

The economic consequences of mortgage debt

  • Geoffrey Meen
Article

Abstract

Unsurprisingly, a great deal of attention has been paid to the economic consequences of the credit crunch. However, this paper shows that the credit crunch was preceded by a strong build-up of mortgage debt internationally, which, in the long run, could turn out to be more significant than the credit crunch itself. Indeed, the debt build-up suggests that the credit crunch is more likely to reoccur, because highly-indebted households have weaker buffers to withstand unexpected shocks to their incomes or to interest rates. The paper presents a model that can explain the debt build-up and changes to the distribution of debt between existing owners and first-time buyers, which hinders access to home-ownership for the latter, even amongst those households who would be considered as credit-worthy.

Keywords

Mortgage debt Credit crunch House prices Home-ownership 

References

  1. Akerlof, G. A., & Shiller, R. J. (2009). Animal spirits; how human psychology drives the economy and why it matters for global capitalism. Princeton: Princeton University Press.Google Scholar
  2. Ball, M., Meen, G., & Nygaard, C. A. B. (2010). Housing supply revisited: Evidence from international, national, local and company data. Journal of Housing Economics, 19, 255–268.CrossRefGoogle Scholar
  3. Battellino, R. (2009). Housing and the economy. Remarks to the 6th National Housing Conference, Melbourne.Google Scholar
  4. Canner, G. B., Passmore, W., & Mittal, M. (1994). Private mortgage insurance, federal mortgage insurance. October, 883–899.Google Scholar
  5. Green, R., & Wachter, S. (2005). The American mortgage market in historical and international context. Journal of Economic Perspectives, 19(4), 93–114.CrossRefGoogle Scholar
  6. Greenspan, A., & Kennedy, J. (2005). Estimates of home mortgage originations, repayments, and debt on one-to-four-family residences. Finance and economics discussion series, federal reserve board, 41.Google Scholar
  7. Krugman, P. (2008). The international finance multiplier. http://www.princeton.edu/~pkrugman/finmult.pdf.
  8. Meen, G. P. (2001). Modelling spatial housing markets: Theory, analysis and policy. Boston: Kluwer Academic Publishers.CrossRefGoogle Scholar
  9. Meen, G. P. (2008). Ten new propositions in UK housing macroeconomics: An overview of the first years of the century. Urban Studies, 45(13), 2759–2781.CrossRefGoogle Scholar
  10. Muellbauer, J. (2005). Property taxation and the economy after the barker review. Economic Journal, 115(502), C99–C117.CrossRefGoogle Scholar
  11. Muellbauer, J., & Cameron, G. (2000). Five key council tax reforms and twelve reasons to enact them. New Economy, 7(2), 88–91.CrossRefGoogle Scholar
  12. Muellbauer, J., & Murphy, A. (1997). Booms and busts in the UK housing market. The Economic Journal, 107, 1701–1727.CrossRefGoogle Scholar
  13. Rajendra, G., & Påhlson-Möller, I. (2008). Australian residential mortgage-backed securities update. In Deutsche Bank Global Securitisation and Structured Finance.Google Scholar
  14. Reinhart, C. M., & Rogoff, K. S. (2008). Is the 2007 U.S. sub-prime financial crisis so different? An international historical comparison. American Economic Review, 98(2), 339–344.CrossRefGoogle Scholar
  15. Reinhart, C. M., & Rogoff, K. S. (2009). This time is different: Eight centuries of financial folly. Princeton, New Jersey: Princeton Press.Google Scholar
  16. Reinhart, C. M., & Rogoff, K. S. (2010). Growth in a time of debt. American Economic Review, 100(2), 573–578.CrossRefGoogle Scholar
  17. Stephens, M. (2000). Convergence in European mortgage systems before and after EMU. Journal of Housing and the Built Environment, 15(1), 29–52.CrossRefGoogle Scholar
  18. Tatch, J. (2006). Will the real first-time buyers please stand up? CML Housing Finance. London.Google Scholar

Copyright information

© Springer Science+Business Media B.V. 2011

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of ReadingReadingUK

Personalised recommendations