Bank Regulation, Construction Financing, and the Supply of New Housing
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Research Briefs in Economic Policy
Bank Regulation, Construction Financing, and the Supply of New Housing
Bank regulations after 2008 reduced construction lending, impacting new home sales and contributing to higher house prices.
By Sheridan Titman, Deheng Xu, and Yiyuan Zhang
October 21, 2026
No. 506
In the post-2008 period, the US experienced a relative shortage of new single-family homes despite a recovering housing market. This has raised concerns about housing affordability and price increases. While various explanations exist, our research suggests another factor: changes in bank regulation that may have limited financing for home builders.
Construction loans are crucial for small- and medium-sized builders, who often rely on local banks for land purchases and construction funding. These relationships can be challenging to replace due to the specialized nature of construction projects and the local knowledge required. If banks have tightened lending standards, it could explain why some builders have struggled to secure financing, contributing to the shortage of new homes.