Return on investment in supporting homeownership: Evidence from French interest-free loan policy

Abstract

This article estimates the impact of subsidized loans for first-time homeownership on the number of new homeowners (extensive margin), housing choices (intensive margin), and housing prices (capitalization effect). Our identification strategy relies on the spatial and temporal variations of the French interest-free loan policy over the last decade, controlling for confounding treatment assignment through spatial semi-parametric propensity scores. Our doubly robust estimates cannot rule out that the policy has no effect at the extensive margin, while it has significant intensive margin and capitalization effects. For a wide range of social values for the extensive and intensive margins, we compute the returns to government spending according to counterfactual policy schemes and credit market conditions. Our simulations suggest that for reasonable social values, increasing public spending has a return on investment lower than one, and may even be negative in some situations.

Keywords: Housing policy, policy efficiency, unconfoundedness, generalized additive model, spatial smoothing