Fiscal Stimulus Payments, Housing Demand, and House Price Inflation

This paper studies whether the fiscal stimulus programs during the 2020-2021 COVID-19 pandemic contributed to the sharp rise in house prices during the same period. Exploiting the variation in the share of local population eligible for the historic $900 billion economic impact payments and expanded child tax credits, the paper finds that house prices grew significantly faster in areas where residents received a larger amount of stimulus payments. The estimates suggest that a $1000 increase in per-capita payments is associated with a 3 to 4 percentage points higher house price growth from 2019 to 2021 across MSAs. The effect cannot be accounted for by changes in non-transfer income, population growth or migration, exposure to the shift to remote work, pre-2020 per-capita income or house price levels, or differential housing trends, and is present both across MSAs within the same states and across counties within the same MSAs. Greater transfer payments are also associated with an increase in homeownership, higher growth rates of mortgages made to borrowers eligible for the transfer payments, and faster growth of housing rents. Taken together, these results suggest that the massive fiscal programs of 2020 and 2021 stimulated housing demand and helped fuel the housing boom during this period, which contributed significantly to the surge in inflation in recent years