CREDIT RATIONING AND THE DEMAND FOR OWNER-OCCUPIED HOUSING

This study applies cross-sectional data to test whether default risk-induced credit constraints affect the demand for owner-occupied housing. Credit-constrained households are argued to exhibit different elasticities of demand for housing than less constrained households. Housing demand elasticities are then estimated separately for households obtaining VA-insured and non-VA loans: the government guarantee on VA loans insures lenders against default, enabling lenders to apply easier nonprice terms of credit. Results indicate that observed demand elasticities differ significantly across VA and conventional mortgage holders, that marginal changes in credit constraints affect housing demand, and that FHA financing mitigates the effect of mortgage constraints. © 1991.