Did Housing Policies Cause the Post-War Boom in Homeownership? A General Equilibrium Analysis

The objective of this paper is to understand the sources of the boom in home ownership between 1940 and 1960. The increase over this period was five times larger than the recent episode 1996-2004. In the post-depression period the government opted to intervene and regulate housing finance, provide assistance programs (i.e. through the Veteran Administration), and change tax provision towards housing. The result was a change in the maturity structure of mortgage loans, downpayment requirements and increase of credit. In addition, the economy underwent important changes in the demographic structure, the income distribution. The relative importance of these different driving forces is analyzed using a quantitative general equilibrium overlapping generation model with housing. The parameterized model is consistent with key aggregate and distributional features in the U.S. in 1940. In contrast to the recent episode, income and demographics are the crucial variables in accounting for the increase in homeownership. Essentially, the level and shape of income over the life-cycle are a precondition for the government reforms in housing markets and housing finance to play an important role in generating an increase in the aggregate home ownership. The increase in life expectancy and the shift in the distribution of age cohort also had a significant effect in the demand for housing.