The Impact of Federal Housing Policy on Housing Demand and Homeownership: Evidence from a Quasi-Experiment

Morris A. Davis, Stephen D. Oliner, Tobias J. Peter, Edward J. Pinto

Research output: Contribution to journalArticlepeer-review

4 Scopus citations


Federal housing policy promotes homeownership by subsidizing mortgage debt for many households with few assets and low credit scores. In this paper, we exploit the Federal Housing Administration's (FHA's) surprise 50 basis point cut to its annual mortgage insurance premium in January 2015 to study the impact of federal housing policy and interest rates on housing demand for a population of households likely to be influenced by changes to policy. The premium cut, which reduced monthly payments the same amount as a three-quarter percentage point drop in the mortgage rate, increased the purchasing power of the typical FHA borrower by 6 percent. Our analysis shows FHA borrowers increased the value of the housing they purchased by 2.5 percentage points relative to a control group of borrowers in areas with minimal FHA presence. The rise in spending reflected an increase in constant-quality home prices, with no significant change in the quality of housing purchased by FHA buyers. We also estimate that the premium cut induced approximately 17,000 households to become first-time homebuyers in the initial year after the cut, an increase that fell far short of the FHA's projection.

Original languageEnglish (US)
Article number101670
JournalJournal of Housing Economics
StatePublished - Jun 2020

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


  • FHA
  • homeownership
  • housing demand
  • housing policy


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