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 a difference-in-differences empirical design, I find that rents rose faster than ownership costs in high-regulated markets from 2020 to 2022, strengthening incentives for renters to transition into homeownership. In main results, the share of first-time-buyer mortgages grows more in highly regulated areas than in less regulated ones. 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.