How Local Land-Use Regulation Shapes First-Time Homebuyer Responses to COVID-19 Shock (Job Market Paper)

Abstract

I examine how COVID 19 shock affected first-time homebuyers across markets with differing local land-use regulation. With an event study empirical design, I find that rents have increased more rapidly than the cost of homeownership for individuals deciding between renting and buying a home from 2020 to 2022, temporarily strengthening incentives for renters to transition into homeownership in high-regulated markets. During this period, the share of first-time-buyer mortgages grew more in highly regulated areas than in less regulated ones and returned to pre-pandemic levels once ownership costs surpass rent cost in 2023. Additional evidence indicates that first-time buyers took on greater leverage (higher LTVs) and that, the composition may have shifted towards buyers with less liquid assets in these highly regulated locations. The main finding remains robust when using alternative measures of housing supply constraints.