Ownership incentives and housing affordability: Evidence from France
Are ownership incentive policies inevitably accompanied by detrimental inflationary effects?
To address this issue, we develop a theoretical model in which owners of new housing benefit from a homeownership subsidy or a rental investment incentive. We show that while both incentives increase the price of the new housing, they reduce old housing prices and have an ambiguous impact on the average housing price. These effects result from residential spillovers from the old housing market to the new housing market. We test these findings empirically by exploiting a 2014 French reform in the metropolitan area of Lyon which intensified both incentives. Difference-in-difference estimates confirm our theoretical predictions: two years after the reform, the price of new housing increased by 30% and the price of old housing decreased by 7%. Taking both markets together, the overall effect is non-significant. The share of new housing transactions increased by 25%.