The impact of subsidies on house prices in Mexico's mortgage market for low-income households 2008–2019

Abstract

We estimate the effect of Mexico's primary house-purchase subsidy program for low-income individuals on house prices between 2008 and 2019, using administrative records from Infonavit, the nation's largest mortgage originator. We employ a fuzzy regression discontinuity design that leverages the existence of a threshold on the borrower's income that determined access to the subsidy program to identify the effect on house prices. Our estimations yield statistically significant evidence that the subsidy led to an average increase in house prices of 863 US dollars for the program participants at the threshold during those years. This effect represents 28.9 % of the average subsidy amount and 5.4 % of the average house price. The estimations control for individual, house, and location characteristics. Furthermore, we find evidence that when an intermediary is involved in the mortgage application process, there is a statistically significant price difference of 867 dollars for subsidy recipients. On the contrary, this impact disappears when no external broker is involved. These intermediaries are primarily real estate developers that build and sell the houses associated with the mortgages. These findings shed light on how market structure could have nonnegligible impacts on equilibrium outcomes and on the welfare effects of economic policy.