The Economic Impacts of Help-to-Buy

The British government introduced its new flagship housing policy—Help to Buy (HtB)—in 2013. The policy aims to help households, especially first-time buyers, to overcome their credit and liquidity constraints, stimulate housing construction and increase housing affordability. To explore the economic impacts of HtB, we exploit a difference-in-discontinuities design, taking advantage of spatial discontinuities in the scheme that emerge at the Greater London Authority (GLA) boundary and the English/Welsh border post implementation. We find that HtB substantially increased house prices and had no discernible effect on construction volumes or aggregate private mortgage lending in the GLA, where housing supply is subject to severe long-run constraints and housing is already extremely unaffordable. HtB did increase construction numbers without affecting prices near the English/Welsh border, an area with less binding supply constraints and comparably affordable housing. HtB also led to bunching of newly built units below the price threshold, building of smaller new units and an improvement in the financial performance of developers. We conclude that HtB may be an ineffective policy in already unaffordable areas.

joint with Christian A. L. Hilber and Xiaolun Yu.