Market Impacts and Unintended Consequences of Housing Assistance Policies with Price Threshold

70 Pages Posted: 10 Sep 2020 Last revised: 11 Oct 2023

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Maggie Hu

The Chinese University of Hong Kong

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate)

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Date Written: February 26, 2021

Abstract

We find a housing assistance policy targeting at new homes priced up to $600,000 leads to substantial volume bunching just below $600,000, over 8 times counterfactual density. The surge in demand for policy-eligible homes results in an average overpricing of $4,000, offsetting up to 71% of received benefits, indicating considerable market distortions and price inflations. Policy-affected homes experience an average 25% reduction in area size and 57% higher likelihood of becoming rental investment properties in the long term, undermining the goal of boosting homeownership. Our findings shed light on the strategic market responses and negative externalities of macroprudential housing polices.

Keywords: Housing assistance policy, real estate pricing, price bunching, price inflation, economic stimulus

JEL Classification: R20, R38

Suggested Citation

Agarwal, Sumit and Hu, Maggie and Lee, Adrian D., Market Impacts and Unintended Consequences of Housing Assistance Policies with Price Threshold (February 26, 2021). Available at SSRN: https://ssrn.com/abstract=3665154 or http://dx.doi.org/10.2139/ssrn.3665154

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Maggie Hu (Contact Author)

The Chinese University of Hong Kong ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Hong Kong, N.T.
Hong Kong

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate) ( email )

70 Elgar Road
Melbourne, VIC 3125
Australia

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