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Abstract
Following the Great Recession, two important recovery acts provided incentives for a qualified first-time homebuyer to purchase a home: the Housing and Economic Recovery Act of 2008 (HERA2008) and the American Recovery and Reinvestment Act of 2009 (ARRA2009). Using the American Housing Survey and a difference-in-differences approach, I find that recent movers who qualified for HERA2008 were 8.2% more likely to choose homeownership, relative to movers who did not qualify for HERA2008. Recent movers who qualified for a tax credit under ARRA2009 were 9.3% more likely to purchase a home than movers who did not qualify for the credit.
Keywords
first-time homebuyer tax incentives, tenure choice, difference-in-differences
Amidst the largest housing crisis of this generation, which according to many economists, including Wheelock (2008), was the principal cause of what is now referred to as the Great Recession, the U.S. government enacted the Housing and Economic Recovery Act of 2008 (HERA2008) and the American Recovery and Reinvestment Act of 2009 (ARRA2009). Both HERA2008 and ARRA2009 offered special tax incentives for qualifying first-time homebuyers. The Government Accountability Office issued a report in 2010 explaining that the goal of these first-time homebuyer tax incentives was "to assist the struggling real estate market and encourage taxpayers to purchase their first homes" (GAO, 2010). These tax incentives create a natural experiment, as the tax code treated existing homeowners and first-time homebuyers the same before these laws were implemented and differently while they were in effect. This paper is the first to use homeownership data and a difference-in-differences approach to assess the impacts of the first-time homebuyer tax credits on tenure choice. Specifically, I find that recent movers who qualified for HERA2008 were 8.2% more likely to purchase a home than recent movers who did not qualify for this interest-free loan. Similarly, those who qualified for ARRA2009 were 9.3% more likely to purchase a home than recent movers who did not meet the requirements for this tax credit.
HERA2008 provided interest-free loans to first-time homebuyers in the amount of 10% of the purchase price of a home, up to $7,500. The loan came with income requirements and phased out for single (married) first-time homebuyers if their income was over $75,000 ($150,000), and it had to be repaid within 15...