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Credit Constraints and the Composition of Housing Sales. Farewell to First-Time Buyers?

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  • Felipe Carozzi

Abstract

During the housing bust of 2008–2009, housing prices and transaction volumes fell across the United Kingdom. Although the drop in prices was similar across housing types, transaction volumes fell more for units at the lower end of the market. I document this fact and provide panel and instrumental variable estimates showing its link with tightening credit conditions in England and Wales during 2008. I then use an overlapping-generation framework to relate the change in the composition of sales with the reduction in loan-to-value ratios by British banks and to derive additional predictions. As down-payment requirements increase, young households with scarce financial resources are priced out by older owners who retain their previous houses as rental properties when trading up. Recent changes in aggregate housing tenure, disaggregated changes in renting, and sales in areas with different age compositions, are consistent with these predictions. The results presented here show how the composition of sales changes over the housing cycle and may inform ongoing policy discussions about reduced access to home-ownership by the young.

Suggested Citation

  • Felipe Carozzi, 2020. "Credit Constraints and the Composition of Housing Sales. Farewell to First-Time Buyers?," Journal of the European Economic Association, European Economic Association, vol. 18(3), pages 1196-1237.
    • Handle: RePEc:oup:jeurec:v:18:y:2020:i:3:p:1196-1237.
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    File URL: http://hdl.handle.net/10.1093/jeea/jvz017
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    Cited by:

    1. Carozzi, Felipe & Hilber, Christian A.L. & Yu, Xiaolun, 2024. "On the economic impacts of mortgage credit expansion policies: Evidence from help to buy," Journal of Urban Economics, Elsevier, vol. 139(C).
    2. Christian A. L. Hilber & Olivier Schoni, 2022. "Housing policy and affordable housing," CEP Occasional Papers 56, Centre for Economic Performance, LSE.
    3. Montalvo, José G. & Piolatto, Amedeo & Raya, Josep, 2020. "Transaction-tax evasion in the housing market," Regional Science and Urban Economics, Elsevier, vol. 81(C).
    4. Hilber, Christian A. L. & Mense, Andreas, 2021. "Why have house prices risen so much more than rents in superstar cities?," LSE Research Online Documents on Economics 112668, London School of Economics and Political Science, LSE Library.
    5. Eerola, Essi & Lyytikäinen, Teemu & Ramboer, Sander, 2022. "The impact of mortgage regulation on homeownership and household leverage: Evidence from Finland's LTV reform," Working Papers 148, VATT Institute for Economic Research.

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