Economic conditions, climate change and housing affordability across US states : the mediating role of interest rates in a panel data analysis

Abstract

PURPOSE : The issue of housing affordability is a serious concern, as it affects households’ ability to cover housing expenses without sacrificing other essential needs. However, housing affordability is not solely dependent on economic conditions. The consequences of climate change, such as extreme weather events can worsen the housing crisis by reducing the supply of affordable housing and driving up costs. Therefore, the purpose of this paper is to investigate how in addition to economic conditions, climate change affect the affordability of housing in the USA using state-level data covering the 50 states in the country. DESIGN/METHODOLOGY/APPROACH : This study used a panel autoregressive distributed lag model to estimate short- and long-term effects and analyzed economic periods before and after the global financial crisis. This study also divided the states into two regions, the hottest and coldest, to examine differences in housing affordability. FINDINGS : The findings reveal some crucial facts about housing affordability concerning economic conditions and climate change. The study shows result that suggests better economic conditions lead to increased housing affordability, particularly in colder regions. Additionally, climate change positively affects housing affordability in the short term. Finally, this study confirms the important role of interest rates in the relationship between economic conditions and housing affordability. ORIGINALITY/VALUE : The review of existing works indicates that studies on housing concerning economic conditions and climate change at disaggregated levels are very scarce. As a result, this study pays attention to investigating the connection between housing affordability and economic conditions for 50 states in the USA. Additionally, this study makes some extensions by examining the role of climate change and how interest rates could mediate in the nexus given either improved or depressed economic conditions.