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SERC/Urban and Spatial Programme Discussion Paper
Credit Constraints and the Composition of Housing Sales. Farewell to First-Time Buyers?
Felipe Carozzi
July 2015
Paper No' SERCDP0183:
Full Paper (pdf)

JEL Classification: R30; G21

Tags: housing markets; housing tenure; credit constraints

During the housing bust of 2008–2009, home prices and transaction volumes fell across the entire United Kingdom. However, while the fall in prices was similar across housing types, transaction volumes fell more for homes at the lower end of the market. I document this fact and use an overlapping-generations model to relate it to the reduction in loan-to-value ratios by British banks and to derive additional predictions. As down-payment requirements increase, young households with scarce financial resources are priced out by older owners who retain their previous housing for renting when trading up. Recent changes in aggregate housing tenure as well as changes in the number of sales and rentals in areas with different age composition are consistent with the model predictions. The insights presented here inform recent policy discussions about reduced access to home ownership by the young.