Welfare, redistribution and financial stability in housing and mortgage markets

Introduction

Worldwide, housing wealth represents the most important asset in households' balance sheets, and mortgage debt is the most important liability. In the past two decades, several countries have experienced house price bubbles, excessive household leverage, and increasing risk-taking behavior of banks.

Background

To limit these phenomena, and in response to the 2008 financial crisis, new regulations have been introduced in housing and mortgage markets. The lack of disaggregate and extensive micro-level data on housing and mortgages has so far prevented researchers from carefully investigating these events and the effectiveness of regulation.

Project Objective

This project will bridge this gap. I will assemble a unique and extensive platform of datasets on housing and mortgage markets, combining disaggregate information on housing transactions, buyers and sellers, and loan-level data on mortgages for two European countries, the Netherlands and Norway.

Methodology

These data will be used to develop and estimate novel structural econometric models of demand and supply in housing and mortgage markets. These models will serve to investigate three main questions of concern to policymakers, and to evaluate the welfare effects of existing and alternative regulations via counterfactual simulations.

1. Demand Channel Investigation
   I will investigate a novel demand channel of housing and mortgages driven by the rise of accommodation sharing platforms such as Airbnb. While these platforms provide extra income to households renting their property, they also fuel housing bubbles and affect mortgage markets.

2. Mortgage Securitization Evaluation
   I will evaluate the role of mortgage securitization in reducing lenders' funding costs, quantify its effect on lenders' risk-taking behavior, and propose regulations to balance this trade-off.

3. Distributional Effects of Leverage Regulations
   Lastly, I will document the distributional effects of leverage regulations that have helped to reduce credit risk but have also disproportionately penalized low-income households and first-time buyers, worsening income and wealth inequality.