This paper studies the effect of credit supply in the home mortgage market on households' investment in housing quality and the resulting effect on neighborhood development. I construct shocks to refinancing credit supply and credit standards, and demonstrate using difference-in-differences and instrumental variables approaches with Chicago administrative data that negative shocks depress housing investment and spillover to nearby tracts. I then present a dynamic model that rationalizes these results through investment incentives of profit-maximizing and credit-constrained building managers catering to consumers whose housing demand depends on house and neighborhood quality. The model best fits the data when households place equal weight on house and neighborhood quality - suggesting an important role for neighborhood effects in investment incentives - and matches growth rates from 2010-2016 in model-implied housing quality with a correlation of 0.53, and in annual rental prices with a correlation of 0.48. I use the model to simulate the impact of Chicago's selected ``opportunity zones'' on city-wide house prices, and construct counterfactual opportunity zones that have a larger impact both on the city as a whole and on distressed tracts in the city.