Credit easing, income gap, and housing price fluctuation

Abstract

The COVID-19 pandemic has caused a global economic recession, forcing several countries to adopt credit easing policies. This study examines the impact of credit easing on housing price fluctuations from an income gap perspective. Through the construction and analysis of a heterogeneous agent model, we reveal that credit easing promotes the rise of house prices and a positive correlation exists between the income gap and the effect of credit easing on house prices. Additionally, credit easing substantially enhances the housing demand of low-income people, increasing debt and house prices. The analysis using panel data from 36 countries from 1970 to 2018 confirms that compared to rising income for high-income people, a decline in the income level of low-income people significantly increases credit easing effect on house prices.