Abstract:

How does mortgage affordability shape city growth and fertility choices? We
study the revolutions in mortgage financing that took place in the U.S. between
1933 and 1940, which created a national mortgage market facilitating mortgage
capital to move from the financial centers to the rest of the country. By digi-
tizing city-level census data and a new sample of loan-level data, we show that
differences in mortgage rates across cities went from nearly 300 basis points to
just over 100 in only six years. This national mortgage market allowed initially
capital-scarce places to grow more than capital-abundant ones. In the decades
following the housing policies, cities that had higher mortgage rates before the
shock saw higher growth in rates of homeownership, population, housing con-
struction, and house prices. Young households in these cities witnessed higher
birth rates even before the post-World War II baby boom.