There is considerable evidence that boom and bust cycles in real estate are the primary cause of financial crises. This paper develops a model of real estate pricing based on rational behaviour with two regimes. In 'normal times' prices of housing units are determined by the consumers who live...

This paper identifies two types of market failures. The first concerns a coordination problem associated with panics. The problem in analysing this type of market failure from a policy perspective is that there is no widely accepted method for selecting equilibria. The second market failure...