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On the economic impacts of mortgage credit expansion policies: evidence from help to buy

Author

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  • Felipe Carozzi
  • Christian A. L. Hilber
  • Xiaolun Yu
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.

Suggested Citation

  • Felipe Carozzi & Christian A. L. Hilber & Xiaolun Yu, 2020. "On the economic impacts of mortgage credit expansion policies: evidence from help to buy," CEP Discussion Papers dp1681, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp1681
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    Cited by:

    1. Kunovac, Davor & Zilic, Ivan, 2022. "The effect of housing loan subsidies on affordability: Evidence from Croatia," Journal of Housing Economics, Elsevier, vol. 55(C).
    2. Paul Cheshire & Christian A. L. Hilber & Olivier Schöni, 2021. "The pandemic and the housing market: a British story," CEP Covid-19 Analyses cepcovid-19-020, Centre for Economic Performance, LSE.
    3. Alexander Daminger, 2021. "Subsidies to Homeownership and Central City Rent," Working Papers 210, Bavarian Graduate Program in Economics (BGPE).
    4. Hilber, Christian A. L. & Mense, Andreas, 2021. "Why have house prices risen so much more than rents in superstar cities?," LSE Research Online Documents on Economics 112668, London School of Economics and Political Science, LSE Library.
    5. Tracey, Belinda & Van Horen, Neeltje, 2021. "The consumption response to borrowing constraints in the mortgage market," Bank of England working papers 919, Bank of England.
    6. Montebruno, Piero & Silva, Olmo & Szumilo, Nikodem, 2021. "Judge Dread: court severity, repossession risk and demand in mortgage and housing markets," LSE Research Online Documents on Economics 110474, London School of Economics and Political Science, LSE Library.
    7. Stephen L. Ross & Yuan Wang, 2022. "Mortgage Lenders and the Geographic Concentration of Foreclosures," Working Papers 2022-001, Human Capital and Economic Opportunity Working Group.
    8. Szumilo, Nikodem & Vanino, Enrico, 2021. "Mortgage affordability and entrepreneurship: Evidence from spatial discontinuity in Help-to-Buy equity loans," Journal of Business Venturing, Elsevier, vol. 36(4).
    9. Alexander Daminger, 2023. "Homeowner Subsidies and Suburban Living: Empirical Evidence from a Subsidy Repeal," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 79(2), pages 111-145.
    10. Julien Pascal, 2022. "Local employment dynamics and communtig costs," BCL working papers 167, Central Bank of Luxembourg.
    11. Paul Cheshire & Christian A. L. Hilber, 2024. "Housing and planning," CEP Election Analysis Papers 061, Centre for Economic Performance, LSE.

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    More about this item

    Keywords

    help to buy; house prices; construction; housing supply; land use regulation;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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