Community banks’ capital requirements and regional housing tenure

Chenzi Yang*, Fernando F Moreira, Thomas W Archibald

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

Bank capital requirements aim at reducing the likelihood of banks' failure. However, these policies may generate externalities on the overall economy. By investigating the pathways from capital requirements to housing tenure using structural equation modelling, we show that community banks' capital requirements increase the gap between the regional real estate loans-based and non-real estate loans-based housing purchase rate and act as driving factors of housing market imbalance. The drop in residential real estate loans caused by the increase in capital requirements has two opposite effects: the direct effect motivates residents to rent properties, while the indirect effect motivates residents to purchase them due to the fall in housing prices. When both effects exist in housing purchases with real estate loans, the former effect is more influential than the latter one. Our findings suggest that the impact of capital requirements on housing tenure will depend on residents' reliance on real estate loans. If a housing purchase requires real estate loans, capital requirements will have a negative impact on the housing purchase, and vice versa.

Original languageEnglish
Pages (from-to)723-746
Number of pages24
JournalAustralian Economic Papers
Volume62
Issue number4
Early online date2 Oct 2023
DOIs
Publication statusPublished - Dec 2023

Keywords / Materials (for Non-textual outputs)

  • minimum capital requirements
  • housing prices
  • housing tenure
  • real estate loans

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