This paper employs a simple intertemporal model to show that presence of liquidity constraints can
depress the price of a durable good below its net present rental value, regardless of the overall supply
elasticity. The existence of price effects implies that the relaxation of liquidity constraints is not
Pareto improving, and may in fact be regressive. Historical evidence, which exploits the fact that
a clearly identifiable group, war veterans, enjoyed the most favored access to mortgage credit in the
postwar era, supports the model. The results suggest that more recent mortgage market innovations
have served primarily to increase prices rather than home ownership rates.