The housing slump and the great depression in the USA

The collapse of residential construction was a notable feature of the Great Depression in the USA. The housing slump did not simply follow the downward shifts in income: rather residential investment collapse helped to precipitate the Great Depression. By utilizing an augmented Tobin's q model of residential investment, we show that heightened uncertainty surrounding builders' anticipated profits largely explains the housing slump in the key year of 1930. A combination of forces, including house prices, building costs, credit and demand constraints, and financing costs, is shown to explain the longer decline of residential investment in 1928-1933. Tighter monetary policy played an important role in 1928-1929, whereas financial disintermediation was influential in 1933-1934.