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On the Welfare Gains of Housing Affordability

Author

Listed:
  • Diego Ascarza-Mendoza

    (School of Government and Public Transformation, Tecnológico de Monterrey)

  • Tomás Rosé

    (Analysis Group)

Abstract

This paper studies the welfare effects of expanding access to standard mortgage financing for factory-built homes. We begin by outlining the regulatory barriers that prevent many low- and middle-income U.S. households from using traditional mortgage credit in this segment. Compared with chattel loans—the primary financing instrument for manufactured homes—mortgages feature longer maturities, lower interest rates, and tax deductibility of interest payments. To evaluate the welfare consequences of equalizing these conditions, we develop a dynamic life-cycle model of housing decisions that highlights a key trade-off: manufactured homes are more affordable than site-built homes but face less favorable financing terms. The model is calibrated to match both the overall homeownership rate and the distribution of site-built versus manufactured homes in the U.S. South. Our results show that even under a conservative reform—granting tax deductibility alone, while holding interest rates and maturities fixed—welfare gains are substantial, equivalent to a 2% permanent increase in real income, or a 28% increase in lifetime income in present discounted value terms.

Suggested Citation

  • Diego Ascarza-Mendoza & Tomás Rosé, 2026. "On the Welfare Gains of Housing Affordability," Working Paper Series of the School of Government and Public Transformation 23, School of Governement and Public Transformation.
    • Handle: RePEc:gnt:wpaper:23
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis

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