Political uncertainty and housing markets

Abstract

This paper examines the causal effects of political uncertainty on housing markets. We used US gubernatorial elections from 1982 to 2018 as a source of exogenous variation in political uncertainty and exploited the regional variations in residential housing markets. We used neighboring states without elections and counties at the state borders without elections as control groups. We found that higher political uncertainty causes (a) a decrease in house price growth; (b) a decrease in the number of housing transactions; and (c) an increase in the number of building permits. These effects are stronger during election years when election outcomes present higher uncertainty. We further examined the impact of political uncertainty on mortgage markets and found that mortgage demand and supply decrease in election years.