Working Paper: NBER ID: w28092
Authors: Kaiji Chen; Qing Wang; Tong Xu; Tao Zha
Abstract: Using three unique micro datasets, we find that an unexpected and unprecedented loosening of China's LTV policy for non-primary houses fueled the entire mortgage boom during 2014Q4-2016Q3. The mortgage expansion disproportionately increased the share of mortgages to middle-aged homeowners with high education, while their consumption growth declined persistently. To interpret these empirical findings, we develop a quantitative model and identify that homeowners' trade-up of their primary homes as speculative housing investment is a key channel for a change in LTV policy to exert aggregate and distributional impacts on mortgage markets. Our cross-city evidence provides empirical support for this channel.
Keywords: No keywords provided
JEL Codes: E02; E21; E50; G11; G12; G18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Relaxation of China's LTV policy for secondary houses (R31) | Fueling of the mortgage boom from 2014 Q4 to 2016 Q3 (G21) |
| LTV policy relaxation (G51) | Increase in share of newly issued mortgages to middle-aged homeowners with high education (G51) |
| LTV policy relaxation (G51) | Decline in share of newly issued mortgages to young households (G51) |
| LTV policy relaxation + High exposure to housing speculation (G28) | Larger increase in mortgage share of middle-aged homeowners with high education (G51) |
| Slow growth of consumption among middle-aged homeowners burdened by higher mortgage debts (G51) | Slowdown in aggregate consumption growth (F62) |
| Reduction in minimum downpayment requirement for secondary houses (R21) | Affects credit conditions for primary homes (G21) |
| Affects credit conditions for primary homes (G21) | Enables existing homeowners to trade up (R21) |
| Enables existing homeowners to trade up (R21) | Generates sizable aggregate impacts on consumption and house prices (F62) |