On the Economic Impacts of Mortgage Credit Expansion Policies: Evidence from Help to Buy

64 Pages Posted: 8 May 2020

See all articles by Felipe Carozzi

Felipe Carozzi

London School of Economics & Political Science (LSE) - London School of Economics

Christian A. L. Hilber

London School of Economics (LSE) - Department of Geography and Environment; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); Spatial Economics Research Centre (SERC)

Xiaolun Yu

affiliation not provided to SSRN

Date Written: April 2020

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.

Keywords: Construction, Help to Buy, House Prices, Housing Supply, Land use regulation

JEL Classification: G28, H24, H81, R21, R28, R31, R38

Suggested Citation

Carozzi, Felipe and Hilber, Christian A. L. and Yu, Xiaolun, On the Economic Impacts of Mortgage Credit Expansion Policies: Evidence from Help to Buy (April 2020). CEPR Discussion Paper No. DP14620, Available at SSRN: https://ssrn.com/abstract=3594250

Felipe Carozzi (Contact Author)

London School of Economics & Political Science (LSE) - London School of Economics ( email )

United Kingdom

Christian A. L. Hilber

London School of Economics (LSE) - Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Spatial Economics Research Centre (SERC) ( email )

United Kingdom

Xiaolun Yu

affiliation not provided to SSRN

No Address Available

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
7
Abstract Views
1,788
PlumX Metrics