Contrasting Effects of Ownership Incentives on New and Second-Hand Housing Prices
Abstract
This article examines the impact of ownership incentives on the housing market, with a specific focus on their differentiated effects on new and existing dwellings. We develop a novel theoretical model in which owners of new housing benefit from homeownership subsidies or rental investment incentives. We show that while both incentives increase the price of new housing, they reduce old housing prices and have an ambiguous impact on average housing prices. These effects result from residential spillovers from the old housing market to the new housing market.
We empirically test these findings by exploiting a 2014 French reform that modified the local eligibility conditions for these programs. Difference-in-differences estimates show that in the five years following the reform, the price of new housing increased by approximately 6% in municipalities in which the eligibility conditions were relaxed compared to those for which remained unchanged. Our results also suggest that prices diminish in old dwellings.
