Who Gains from Housing Market Stimulus? Evidence from Homeowner Grants with Threshold Prices

69 Pages Posted: 10 Sep 2020 Last revised: 26 Feb 2021

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); Financial Research Network (FIRN)

Date Written: February 26, 2021

Abstract

Governments utilize home ownership schemes for the dual purpose of alleviating housing affordability and stimulating housing construction. This paper studies how the housing market responds to assistance policies by exploiting a natural experiment in Sydney, Australia, where buyers of new homes priced up to $600,000 were eligible for government subsidies between July 2010 and June 2012. We find this policy causes large distortions to the sales volume, price level, as well as area size of home transactions. Specifically, we find a large bunching just below the threshold price of $600,000, over 8 times of counterfactual density. This large bunching is from both buyers moving down the price range as well as new entrants attracted to the market by the policy. We also find new homes just below the threshold are associated with an overpricing of about $3,000, offsetting up to 56% of the received benefit. Further, we find homes are about 25% smaller in size than comparable homes in prior periods. Last, we document a wealth effect generated by these housing subsidies, where neighborhoods that receive more housing subsidies increase their new car purchases. Overall, our study sheds light on the effectiveness and externalities of housing stimulus in the form of subsidies to improve homeownership.

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., Who Gains from Housing Market Stimulus? Evidence from Homeowner Grants with Threshold Prices (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

HOME PAGE: http://sites.google.com/site/maggiehuresearch/research

Adrian D. Lee

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

70 Elgar Road
Melbourne, VIC 3125
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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