Market Impacts and Unintended Consequences of Housing Assistance Policies with Price Threshold
70 Pages Posted: 10 Sep 2020 Last revised: 11 Oct 2023
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Market Impacts and Unintended Consequences of Housing Assistance Policies with Price Threshold
Market Impacts and Unintended Consequences of Housing Assistance Policies with Price Threshold
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: Suggested Citation