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Help to Spend? The Housing Market and Consumption Response to Relaxing the Down Payment Constraint

Author

Listed:
  • van Horen, Neeltje
  • Tracey, Belinda

Abstract

We show that relaxing the down payment constraint positively affects household consumption in addition to stimulating housing market activity. For identification, we use the UK Help-to-Buy (HTB) program as a quasi-natural experiment and exploit geographic variation in exposure to the program. We document a significant increase in home purchases, largely driven by first-time and young buyers. More exposed regions also experience a rise in home-related expenditures, non-durable consumption and loan-financed car purchases. Local demand effects appear to partly drive the consumption response. Our findings thus show that interventions in the mortgage market can have important local macroeconomic spillover effects.

Suggested Citation

  • van Horen, Neeltje & Tracey, Belinda, 2022. "Help to Spend? The Housing Market and Consumption Response to Relaxing the Down Payment Constraint," CEPR Discussion Papers 16144, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16144
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    More about this item

    Keywords

    Borrowing constraints; Consumption; Housing market; Mortgage market;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy

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