House prices and the allocation of consumer credit

Mingzhu Tai joined HKU after receiving her Ph. D in Business Economics from Harvard University in 2017. Mingzhu's research interests mainly include consumer and household finance, financial intermediation and general corporate finance. She is currently working to understand the relationship between banks, real estate markets, financial regulations, and credit activities by consumers and businesses.

It is well documented that the housing boom of the early 2000s fueled credit expansion among homeowners. Less attention has been paid to the effects of the housing boom on renters, who make up over 30% of US households. In this paper, I use detailed credit information from a sample of almost 500,000 US consumers to show that house price growth reduced renter credit access during the last housing boom. In particular, banks reduced non-mortgage credit supply when they expanded mortgage lending to homeowners. As a consequence, renters living in locations where banks had more (national) geographic exposure to the housing boom ended up borrowing less but defaulting more. The results are especially pronounced in locations with stronger credit market frictions, as measured by local banks' mortgage retention probability and balance sheet liquidity, or bank cost of funds in the local market. The effects of the housing boom on the borrowing and default behavior of renters persisted during the subsequent recession. This research suggests that policies affecting house prices and mortgage financing have broader implications for less well-off households that do not own a home.