Macroprudential measures, household leverage and tenure choice
Eerola, Essi; Lyytikäinen, Teemu; Ramboer, Sander (2021-01-26)
In this paper, we use population wide individual level data to describe the development of housing tenure choices and household debt during recent decades in Finland, and to analyse the effects of policy measures designed to constrain household leverage. Besides the overall development of tenure choices and indebtedness, we focus specifically on first-time buyers and young households. We also analyse the geographic distribution of leverage. We study two policies directed at influencing the demand for housing credit in Finland. First, we analyse the introduction of a loan-to-collateral limit in Finland in 2016. We find clear evidence that the loan-to-collateral limit constrained loan-to-value ratios of apartment buyers, but this effect seems weaker among high-income households. Yet the debt-to-income ratios for these buyers do not seem to decrease after the reform, possibly owing to increasing prices of apartments. Second, we discuss the potential effects of a recent proposal to limit debt-to-income ratios at 4.5 times household gross income. Our findings suggest that especially in more recent years, this measure would be most binding for young, single and highly educated first-time buyers in (inner) urban areas. The highly leveraged households also tend to have lower income levels but stronger income growth in years following the borrowing than other first-time buyers.
Local public finance and provision of public services