If supply was universally elastic, real housing consumption would probably correlate with credit expansion, but the supply that would be triggered by rising home prices would bring down rents. Nominal housing expenditures, in terms of rent, would grow much more moderately than real housing expenditures. This is basically what happened in parts of the country during the boom where supply was not politically constrained.
Where supply is politically constrained, there is no way for real housing expenditures to grow, so to the extent that new credit allows marginal households to maintain ownership, demand for housing consumption, in terms of rent, shifts to the right and there probably is some positive correlation between credit and rents.
Whether an increase in available credit or limited access housing policies in cities that can maintain sustainably high wage incomes, in either case the effect is to cause more inelastic demand for housing consumption. Supply appears to be the more important factor here. Rent inflation was moderating in the boom and rose sharply in 2006 and 2007 as credit and housing supply growth collapsed.
There was a temporary drop in rent inflation from late 2007 to 2010, as foreclosed households were forced to make a shift in housing consumption while under financial stress, and this created a negative shock in nominal housing demand. But, in the credit constrained environment we have had since then, rent inflation has moved back up. This is because constrained credit has created a housing supply constraint across the country. Housing supply is more important in determining rent inflation than demand that might be triggered by expansive credit, so rents are rising now just as they had been rising in the Closed Access cities when credit was more available.
Since credit creates supply where supply is not politically obstructed, mortgage credit will clearly reduce total housing expenditures. This is the ironic outcome created by inelastic demand with constrained supply. To reduce inflationary spending on housing, we have to increase mortgage expansion.
In these Fred graphs, we can see the conundrum. Real housing expenditures per capita have been flat since 2005 when housing starts collapsed. Because of the Closed Access cities, real housing expenditures have been declining relative to other spending since the 1980s. In the first graph, we can see that since the mid 1990s, compared to non-shelter inflation, wages have been growing strongly. But, for the 15% of personal consumption expenditures that go to housing, that has all been going to rent inflation, which has run roughly even with wage growth.
We can see that in the next graph, which looks at levels instead of rates. The shelter inflation index dipped below wages after the crisis due to the negative shock from foreclosures, but it is now climbing back up, taking more wages each year even as wages rise while real housing consumption remains flat.
So, the problem is that housing is getting more expensive for the average household. If we mistakenly see rising credit access as the primary cause of rising prices and rising demand for housing consumption, then we will mistakenly look to more credit constraints as a means to reduce those expenses. But this will only make the supply problem worse which will only make expenses rise higher.
The problem is that home prices will likely rise if we expand mortgage credit because prices are artificially low right now, due to the severe lack of credit. This is why housing starts are still so low. Every excuse under the sun is trotted out for why housing starts are low, but clearly the overwhelming factor is a lack of mortgage availability for the bottom third of the potential homebuyer market. When home prices rise, this will be taken as a sign that credit does indeed increase housing expenses. But, a commitment to that credit expansion will lead to more supply and a reduction in rent inflation. Normally, I would expect prices to be forward looking and for future supply-based mitigations in rent levels to be immediately captured in home prices, pulling prices back down. But, (1) in the Closed Access cities, there won't be a supply-based mitigation in future rents and (2) at this point, markets will probably require a confirmation of that commitment before prices reflect that effect. So, prices will probably initially rise across cities.
In the meantime, as often as not, articles I see that bemoan the rising cost of housing call for the very policies that are creating the problem. And attempts at mortgage expansion are met with anger. "Here they go again. The banks are going to stick it to us again."