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On the economic impacts of mortgage credit expansion policies: evidence from Help to Buy

Carozzi, Felipe, Hilber, Christian A. L. and Yu, Xiaolun (2020) On the economic impacts of mortgage credit expansion policies: evidence from Help to Buy. CEP Discussion Papers (1681). Centre for Economic Performance, LSE, London, UK.

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Abstract

Mortgage credit expansion policies – such as UK’s Help to Buy (HtB) – aim to increase access to and affordability of owner-occupied housing and are widespread around the world. We take advantage of spatial discontinuities in the HtB equity loan scheme, introduced in 2013, to explore the causal economic impacts and the effectiveness of this type of policies. Employing a Difference-in-Discontinuities design, we find that HtB increased house prices by more than the expected present value of the implied interest rate subsidy and had no discernible effect on construction volumes in the Greater London Authority (GLA), where housing supply is subject to severe long-run constraints and housing is already extremely unaffordable. HtB did increase construction numbers without affecting prices near the English/Welsh border, an area with less binding supply constraints and comparably affordable housing. HtB also led to bunching of newly built units below the price threshold, building of smaller new units and an improvement in the financial performance of developers. We conclude that credit expansion policies such as HtB may be ineffective in tightly supply constrained and already unaffordable areas.

Item Type: Monograph (Discussion Paper)
Official URL: https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information: © 2020 The Authors
Divisions: Geography & Environment
Centre for Economic Performance
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HJ Public Finance
H Social Sciences > HC Economic History and Conditions
JEL classification: G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies
H - Public Economics > H8 - Miscellaneous Issues > H81 - Governmental Loans, Loan Guarantees, and Credits
R - Urban, Rural, and Regional Economics > R2 - Household Analysis > R21 - Housing Demand
R - Urban, Rural, and Regional Economics > R3 - Production Analysis and Firm Location > R31 - Housing Supply and Markets
R - Urban, Rural, and Regional Economics > R3 - Production Analysis and Firm Location > R38 - Government Policies; Regulatory Policies
Date Deposited: 14 Jan 2021 15:06
Last Modified: 15 Jan 2021 00:48
URI: http://eprints.lse.ac.uk/id/eprint/108422

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