The Financial Transmission of Housing Booms: Evidence from Spain

Authors: Alberto Martín, Enrique Moral-Benito and Tom Schmitz

American Economic Review, Vol. 111, No 3, 1013-1053, March, 2021

How does a housing boom affect credit to non-housing firms? Using bank, firm, and loan-level microdata, we show that the Spanish housing boom reduced non-housing credit growth during its first years, but stimulated it later on. These patterns can be rationalized by financial constraints for banks. Constrained banks initially accommodated higher housing credit demand by reducing non-housing credit. Eventually, however, the housing boom increased bank net worth and expanded credit supply. A quantitative model, disciplined by our cross-sectional estimates, indicates that the crowding-out effect was substantial but temporary, and had been fully absorbed by the end of the boom.

This paper originally appeared as Barcelona GSE Working Paper 1044