Housing policy, homeownership, and inequality

Simone Cima and Joseph Kopecky

No tep0724, Economic Papers from Trinity College Dublin, Economics Department

Abstract: Policymakers are reckoning with widening disparities in income and wealth. Perhaps no set of policies have the potential impact the distribution of wealth than those that affect home ownership. In most countries, wealth held by all but the top of the distribution is predominantly housing wealth. Many governments have undertaken measures aimed at helping lower to middle-income households to get on the housing ladder. However, the housing market is very complicated, and such policies could end up hurting households through different channels. We aim to provide guidance on the relative impact of various housing policies and macroeconomic conditions on inequality. To do this we build a life-cycle model where households endogenously choose between buying and renting houses. In this framework we quantify how distributions of income, wealth and consumption, as well as homeownership rates, are affected by a wide range of housing policies or features, specifically: borrower-based macroprudential limits, the presence of institutional investors, taxation of rental income, and measures targeted at the construction sector. We find that all of these policies, and the interactions between them, can lead to substantial movements in inequality and homeownership rates, with supply-side policies being the most impactful. This paper also provides a solid modelling framework for future analysis in this area.

Keywords: Housing policy; Macroprudential policy; Wealth inequality; Inequality; Housing; Renting (search for similar items in EconPapers)
JEL-codes: E21 G51 R21 R28 R31 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2024-09
New Economics Papers: this item is included in nep-cba, nep-dge and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:tcd:tcduee:tep0724

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