Working Paper: NBER ID: w18821
Authors: Matthew Chambers; Carlos Garriga; Donald E. Schlagenhauf
Abstract: After the collapse of housing markets during the Great Depression, the U.S. government played a large role in shaping the future of housing finance and policy. Soon thereafter, housing markets witnessed the largest boom in recent history. The objective in this paper is to quantify the contribution of government interventions in housing markets in the expansion of U.S. homeownership using an equilibrium model of tenure choice. In the model, home buyers have access to a menu of mortgage choices to finance the acquisition of a house. The government also provides special programs through provisions of the tax code. The parameterized model is consistent with key aggregate and distributional features observed in the 1940 U.S. economy and is capable of accounting for the boom in homeownership in 1960. The decomposition suggests that government policies have significant importance. For example, the expansion in maturity of the fixed-rate mortgage to 30 years can account for 12 percent of the increase. Housing policies, such as the introduction of the mortgage interest deduction or the taxation of housing services can have significant effects on homeownership.
Keywords: housing policies; homeownership; mortgage interest deduction; FHA; VA
JEL Codes: E32; N1; R20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 30-year fixed-rate mortgage (FRM) (G21) | increase in homeownership rates (R21) |
| elimination of mortgage interest deductions (G51) | decrease in homeownership rates (R21) |
| extension of FRMs beyond 30 years (G21) | marginal negative effect on homeownership (R21) |