Housing Booms and Productivity Growth

IMF Working Papers, August 15, 2025

Source details

Title: Housing Booms and Productivity Growth
Authors: Yuanchen Yang, Flora Lutz, Lucy Qian Liu
Date: August 15, 2025
Scope: Nexus between persistent house price increases and productivity growth in Canada, with a focus on the collateral channel.

The paper presents a stylized model explaining the mechanism of the collateral channel.
Empirical analysis uses detailed firm-level data spanning from 2000 to 2023.

Model-level insight:
- The stylized model isolates the collateral channel as a mechanism linking house price dynamics to firm investment and productivity.
Firm-level empirical findings:
- There is a negative correlation between firm productivity and its real estate holdings.
- Rising house prices dampen investment for firms with fewer tangible assets.
- Rising house prices stimulate investment for firms with more tangible assets.
Industry-level empirical findings:
- On average, overall productivity may increase with rising house prices.
- Industries with significant tangible asset holdings exhibit an opposite trend (productivity declines), suggesting potential resource misallocation associated with a persistent housing market boom.

Persistent housing market booms can distort capital allocation via the collateral channel.
Differential effects by firms’ tangible asset holdings imply heterogeneous impacts:
- Firms with fewer tangible assets may face crowding-out of productive investment when house prices rise.
- Firms with more tangible assets may expand investment that could reflect reallocation toward asset-intensive activities.
At the industry level, rising house prices can coincide with average productivity gains but mask declines in asset-intensive industries, indicating a risk of resource misallocation.