Growth, financial development, and housing booms

We present a quantitative model to assess the effect of a housing boom on economic growth. In the model, a housing boom boosts economic growth through expanding homeowning entrepreneurs' borrowing capacities and mitigating capital misallocation, however, at different rates across different levels of financial development. Our analysis of 23 housing boom episodes in 54 countries from 1995 to 2012 corroborates the model's implication: economic growth during a housing boom is greater in countries with less developed financial systems.