Title: Housing and credit markets; Essays on housing and credit markets
Abstract: This thesis consists of three chapters on housing
and credit markets. Chapter 1 tests the housing lock hypothesis:
the conjecture that homeowners with limited or negative home
equity, low levels of financial assets and restricted opportunities
to borrow are unable to move. It employs unique, administrative
population data on residential location, home-ownership, family
structure, and household balance sheets from the Netherlands. The
rapid rise in Dutch house prices during the 1995- 2008 period, and
their substantial decline thereafter, has generated large variation
in the home equity of buyers who bought homes a few years apart.
Buyers in the cohorts that purchased homes around the peak have
higher Loan-To-Value (LTV) ratios than earlier buyers, and also
have much lower mobility rates in every year after purchase. A
decline in home equity is associated with large and statistically
significant reductions in household mobility. A rise in the LTV
ratio from 90 to 115% is associated with a 30% decline in household
mobility. The reduction in mobility is observed both within and
across labor markets. The mobility effects of falling home equity
are substantially larger for households with low financial asset
holdings. These results emerge from comparisons of mobility rates
from different purchase cohorts after removing time and region
effects, as well as from an analysis of homebuyers whose purchase
timing was determined by arguably exogenous changes in family
structure. Since Dutch mortgages are full recourse, which rules out
strategic default behavior, the findings provide new support for
the housing lock hypothesis. Chapter 2, co-authored with Francois
Koulischer, studies the role of collateral in liquidity provision
by central banks. Should central banks lend against low quality
collateral? We characterize efficient central bank collateral
policy in a model where a bank borrows from the interbank market or
the central bank. Collateral has favorable incentive effects but is
costly to transfer to lenders who value the collateral less because
of imperfect collateral quality. We show that a fall in the
quantity or the quality of the bank's collateral can increase
interest rates in the economy even with a constant policy rate. A
looser central bank collateral policy can reduce the spread,
alleviate the credit crunch and increase output. Chapter 3 studies
the effects of LTV limits, Payment-To-Income (PTI) limits and the
mortgage interest deduction on mortgage debt exploiting a series of
policy changes in the Netherlands. As intended, regulatory loan
limits reduce mortgage leverage ratios and they also induce
bunching at the loan limits. Loan limits and restrictions of the
mortgage interest deduction trigger large declines in mortgage
volumes. The leverage and volume responses are larger for young,
borrowing-constrained households. The repeal of the mortgage
interest deduction for non-amortizing mortgages decimates the
market for non-amortizing mortgages. The PTI tightening is also
associated with a substantial rise in…
Publication Year: 2015
Publication Date: 2015-01-01
Language: en
Type: article
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