Leverage Regulation and Housing Inequality

Abstract

We estimate an equilibrium model of housing demand and supply. The model allows us to quantify the distributional effects of leverage regulation on mobility and access to high-quality housing. We match the population of households in Norway in 2010-2018, with demographic and financial characteristics, to the universe of housing transactions. Our model features households’ dynamic renting and owning choices, speculators’ housing portfolio rebalancing, and equilibrium pricing across housing products via a market clearing condition. We recover households’ willingness to pay for housing quality and moving costs across the income distribution. Our counterfactuals quantify the regressive effects of tighter loan-to-income (LTI) limits, and document how these depend on household preferences and can be offset limiting speculators’ real estate trading.

Keywords: Housing demand, housing supply, leverage regulation, housing quality, dynamic discrete choice

JEL Classification: D15, D31, G21, G51, R21, R31