Job Market Paper
Home Renovation and Search Frictions in the Housing Market (R&R at Economic Theory)
This paper studies the role of home renovation in shaping housing market dynamics over the business cycle. Using aggregate U.S. data, I document new stylized facts: renovation activity is positively related to house prices, vacancies, and sales, and negatively related to time-on-market. To account for these patterns, I develop a search and matching model with endogenous renovation decisions, a heterogeneous housing stock, and free entry. The model generates a renovation threshold that governs households’ renovation choices and, once calibrated, replicates the observed elasticities between renovation and key housing variables both qualitatively and quantitatively. In the absence of an endogenous renovation channel, housing variables such as prices and market tightness exhibit excessive volatility relative to the data, overreacting to shocks that renovation would otherwise smooth. When renovation decisions are endogenous, homeowners respond to shocks by reallocating renovation activity, thereby changing the composition of listings and reshaping overall market dynamics. These results highlight renovation as an essential adjustment margin in explaining the cyclical dynamics of the housing market.
Working Paper
Renovation Financing, Credit Frictions, and Housing Market Liquidity
This paper augments a baseline search and matching framework by incorporating renovation loans and frictions in credit markets. In addition to the frictions faced by buyers and sellers in the housing market, households must search for lenders and financial institutions must screen borrowers, creating parallel constraints in credit access. The model introduces a novel mechanism: credit frictions in renovation lending interact with housing market frictions through the renovation margin. Calibrating the model to the U.S. post-crisis recovery, I show that improvements in renovation credit access account for a significant share of the rebound in turnover and prices, underscoring the macroeconomic importance of the renovation–credit channel.
The Collateral Channel of Renovation Loans (with Z. Begum Tunc and Victor Ortego-Marti)
This paper quantifies the causal effect of collateral-driven house price shocks on renovation lending. To address endogeneity in local prices, we instrument MSA-level house prices using the interaction of national mortgage rates with land supply elasticity. We then scale these shocks by pre-determined baseline collateral capacity, generating quasi-experimental variation in pledgeable housing wealth. Our results indicate that housing wealth has a significant positive impact on renovation credit, with price appreciation leading to a notably larger increase in lending in regions where households face tighter initial collateral constraints. While these effects are present across the full sample of loan applications, the impact is most pronounced among originated loans, suggesting that house price appreciation primarily facilitates the realized volume of credit. These findings provide new evidence on how housing equity supports household investment and underscores the central role of collateral in the transmission of housing wealth shocks to the real economy.