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Shared‐equity mortgages, housing affordability, and homeownership

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Listed:
  • Andrew Caplin
  • James H. Carr
  • Frederick Pollock
  • Zhong Yi Tong
  • Kheng Mei Tan
  • Trivikraman Thampy

Abstract

Although the homeownership rate rose from 65 percent in 1995 to 69 percent in 2005, this rise appears difficult to sustain. We argue that the development of new shared‐equity mortgages (SEMs) that blur the lines between debt and equity would propel further advances in homeownership. The rationale for these mortgages is that the broad financial markets would value shares in individual housing returns more highly than hard‐pressed prospective homeowners do. We describe a new class of SEMs and provide survey evidence that most households would prefer them to interest‐only and other currently popular mortgages. Financial simulations confirm the value of the securitized SEMs to investors. We present computations suggesting that an increase in the overall U.S. homeownership rate of between 1% and 1.5% would likely result from the development of SEM markets.

Suggested Citation

  • Andrew Caplin & James H. Carr & Frederick Pollock & Zhong Yi Tong & Kheng Mei Tan & Trivikraman Thampy, 2007. "Shared‐equity mortgages, housing affordability, and homeownership," Housing Policy Debate, Taylor & Francis Journals, vol. 18(1), pages 209-242, January.
  • Handle: RePEc:taf:houspd:v:18:y:2007:i:1:p:209-242
    DOI: 10.1080/10511482.2007.9521599
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    File URL: http://hdl.handle.net/10.1080/10511482.2007.9521599
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    References listed on IDEAS

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    1. Robert J. Shiller & Allan N. Weiss, 2000. "Moral Hazard in Home Equity Conversion," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(1), pages 1-31.
    2. Karl E. Case & Robert J. Shiller, 1987. "Prices of single-family homes since 1970: new indexes for four cities," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 45-56.
    3. Marjorie Flavin & Takashi Yamashita, 1998. "Owner-Occupied Housing and the Composition of the Household Portfolio Over the Life-Cycle," NBER Working Papers 6389, National Bureau of Economic Research, Inc.
    4. Flavin, Marjorie & Yamashita, Takashi, 1998. "Owner-Occupied Housing and the Composition of the Household Portfolio over the Life Cycle," University of California at San Diego, Economics Working Paper Series qt89x293v9, Department of Economics, UC San Diego.
    5. Andrew Caplin & Sewin Chan & Charles Freeman & Joseph Tracy, 1997. "Housing Partnerships: A New Approach to a Market at a Crossroads," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032430, January.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Debt, Great Recession and the Awful Recovery
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2014-07-17 17:18:05

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    Cited by:

    1. Valerie Kupke & Peter Rossini & Stanley McGreal & Sharon Yam, 2014. "Female-Headed Households and Achieving Home Ownership in Australia," Housing Studies, Taylor & Francis Journals, vol. 29(7), pages 871-892, October.
    2. Ebrahim, M. Shahid & Shackleton, Mark B. & Wojakowski, Rafal M., 2011. "Participating mortgages and the efficiency of financial intermediation," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 3042-3054, November.
    3. Caplin, Andrew, 2014. "Rational inattention and revealed preference: The data-theoretic approach to economic modeling," Research in Economics, Elsevier, vol. 68(4), pages 295-305.
    4. David Miles, 2012. "Population Density, House Prices and Mortgage Design," Scottish Journal of Political Economy, Scottish Economic Society, vol. 59(5), pages 444-466, November.
    5. James H. Carr & Michelle Mulcahy, 2010. "Twenty years of housing policy: what's new, what's changed, what's ahead?," Housing Policy Debate, Taylor & Francis Journals, vol. 20(4), pages 551-576, September.

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