In modern macroeconomic models it is difficult to obtain explosive price bubbles on assets with
positive net supply. This paper shows that it is possible to obtain explosive bubbles in certain
situations when assets such as land are used as collateral and lenders are willing to lend freely against
it. As land prices rise, collateral constraints become relaxed, and households wish to borrow more. If
the financial sector or government is willing to accommodate this by issuing credit indefinitely, this
can lead to self-fulfilling equilibria where land has a positive, purely speculative, value. Furthermore,
such bubbles need not affect real allocations in the absence of other market imperfections, even when
land is a factor in production.