Who Gains from Housing Market Stimulus? Evidence from Homeowner Grants with Threshold Prices

Governments utilize home ownership schemes for the dual purpose of alleviating housing affordability and stimulating housing construction. This paper studies how the housing market responds to assistance policies by exploiting a natural experiment in Sydney, Australia, where buyers of new homes priced up to $600,000 were eligible for government subsidies between Jul 2010 and Jun 2012. We find large bunching at and just below the threshold price of $600,000, indicating home buyers self-select to the desirable side of the policy. Also, policy-affected homes just below the threshold are associated with an overpricing of about $3,000 and are smaller in size than comparable homes in non-policy periods. Although home buyers receive up to $22,490 of housing assistance, the overpricing reduces its effectiveness by 13%. In comparison, for a different policy solely targeting first-time new home buyers, although we still observe price bunching, we find no overpricing in sales prices. We also document a wealth effect generated by these housing subsidies, with an increase in new car purchases for neighborhoods with more housing subsidies. Overall, our study sheds light on the effectiveness and externalities of housing stimulus in the form of subsidies to improve homeownership