U.S. Housing as Capital Accumulation: The Transformation of American Housing Finance, Households, and Communities

Abstract

This chapter analyzes housing and housing finance in the context of macroeconomic dynamics. It describes the evolution of US housing and housing finance through four distinct periods: after World War II to 1963; 1964 to 1973; 1974 to 1982; and 1983 to the present. The quantitative importance of housing in investment expenditure means that both corporate and household-related asset accumulation is crucial in sustaining macroeconomic momentum in the US economy. Assets embodying value generated in production have market values that are sensitive to fluctuations in financial markets and macroeconomic conditions. Housing assets are especially prone to this knife-edge problem because they depreciate at a much slower rate than most commercial and industrial assets and because the housing resale market is so important relative to new sales. In the 1980s the US housing finance system shifted again: the social-housing elements of the system were dropped, and housing finance was handled not by specialized intermediaries but through security markets.