The residential construction equati

The residential construction equation (AT of Part II of Appendix B) simply translates a given change in the mortgage stock into a corresponding amount of expenditures. Since the expenditures are measured at annual rates, the equation implies that about 50 percent of the increase in the mortgage stock at the margin is reflected in higher construction in the current period with a further 25 percent in the following six months. The proportion of mortgage lending allocated to new construction versus the purchase of existing homes rises during periods of rapid household formation. Also, the market for new housing appears to be more sharply affected by increased lending costs.